The Damani Ultimatum

IT the Stock Summit organised in Bombay by Invest India on May 21, the 50-day-old president of the Bombay Stock Exchange (BSE), Madan Gopal Damani, fired the first salvo by laying out a future blueprint for the country's premier some time now, much to the chagrin of the old boys network at the BSE who have thrown epithets at him ranging from arrogant, too-big-for-his-boots, and vicious vendetta-seeker to short-seller.

He dismisses most allegations casually, but he is touchy about the last one. "I have challenged that if anyone proves a short-sell of even 50 shares in my office, I will give my card away free," he roars. "Nobody has yet picked up the gauntlet." He has reason to be upset. After all, he says, he has based his entire candidature for the BSE president ship on wiping out price-rigging and other unsavoury manipulations. "I want transparency. The system should be garnered to help investors and this is what I aim to achieve." 

And the arrogance? It may derive from deep conviction. He's proud of the fact that his slate is one of the cleanest among the BSE brokers, "right from day one when I bought the membership card from an old Kutchhi broker for Rs 26,000 way back in 1978. The going rate then was Rs 21,000; I paid Rs 5,000 more for the old broker's blessings." They seem to have worked. "In a few months, we aim to achieve Rs 1,000 crore daily," he says, pointing to the steady rise in turnover—from Rs 250 crore to Rs 500 crore—since April. His confidence is based on assurances the BSE claims to have received from FIIs that they would route 80 per cent of their business through the BSE. The Unit Trust of India is also understood to have promised total support. And the new BSE management team is going flat out to snatch business from arch rival NSE.

The new BSE president has decided to increase in-house on-line capacity to 10 lakh trades a day by 1997-98 from the current level of 4 lakh trades a day. The real incremental strength to the BSE turnover will come from the 1,400 Trader Work Stations (TWS) already installed. The present TWS network with a capacity of 19.2 KBPS (kilobytes per second) of dial-on-voice system are considered to be comparatively slow. Another 800 TWS of 64 KBPS are to be added immediately operable on Ethernet. These Ethernet TWS connections will be able to communicate with the BSE on-line mainframe within half-a-second compared to the present response time of one second.

Just three buildings near the BSE tower house almost 300 members, 200 of whom are expected to avail of the new facilities. Very shortly, each member will be allowed to have up to seven TWS which may increase the total number to 800 workstations. Damani also plans to distribute 100 TWS in the suburbs of Bombay via the Member Connectivity Appliance (MCA) with 8 terminals per member. "Eighty of these MCAs have already been imported from Motorola. Our plan is to have a total of 3,000 TWS connections in and around Bombay as soon as possible to add maximum incremental value to the turnover of the stock exchange," Damani says.

But the issue Damani is most passionate about is extending BSE On-Line Trading (BOLT) to other cities. "BSE alone can provide the depth, width and liquidity needed by the Indian investor," he says. "With BOLT terminals in other cities, brokerages would come down and investors would be able to get real-time and reliable information on their scrips and trades. For many years, BSE with over 6,000 listed securities have been catering to smaller investors all over the country. By expanding BOLT, these relationships can only be cemented."

Damani is positive that BOLT will spread across India. "Legally they can't stop us," he says. "The government has repeatedly put it off, saying it's a policy decision. But when the advantages of such a linkage are so obvious, why continue dithering?" With the BJP government coming to power, his hopes shot up. "Jaswant Singh is a very forward-looking person," says Damani, who has a framed Jai Shri Ram poster in his chambers. Under a BJP regime, feels Damani, the BSE could expand nationwide and regain the glory it lost to the NSE which, operating from 26 centres, has logged in a higher turnover. And five days before the vote of confidence, Damani remained confident that the BJP regime would survive.

But while the national VSAT link hangs fire, a single market in the western zone by establishing interconnectivity between exchanges of Vadodara, Pune and Indore is fast becoming a reality. CMC Ltd has already prepared a detailed report on the project. Says Joseph Massey, executive director of Vadodara Stock Exchange: "If BSE gets the go-ahead from SEBI on its BOLT expansion, I don't see any problem in going ahead with the proposal." 

Even his detractors maintain that Damani is not one to be sitting on his cudgels. "Whatever his faults may be, there is no denying that once he makes up his mind, he goes at it hammer and tongs. The Reliance episode is a case in point. Despite pressures from all and sundry, Kamal Kabra (the earlier president) and Damani stuck to their guns and suspended RIL," says a broker. In fact, Reliance Industries, in a letter to SEBI had even named Damani as one of the two members of the BSE board who were not amicable to the company's interests. "I've no personal enmity with Reliance," Damani says. "As a member of the board, the sanctity of the exchange has to be maintained at all costs. We are talking about principles." 

That Damani has no love lost for Reliance is obvious from his candid admission that his holdings in RIL amounts to a mere 38 shares. "That's what I think of the company," he says. Outsiders claim that history may some day thank the Reliance episode for cleaning up the BSE. "It is this adamantine streak in him that probably accounts for all the measures that the BSE board has taken recently to eradicate price-rigging in the bourse," says a broker.

That and his bias towards technology could go a long way to improve the system at the BSE. Consider the measures that have been introduced. Compared to the patavat (delivery) 12 days after the last trading day that was the norm earlier, for A and B1 group which account for 90 per cent of the trade in terms of value, the post-settlement time is now only eight days. While earlier pay-in and pay-out used to take three to five days after patavat, they are now being completed within two-three days after patavat.

Auction of shares which earlier used to take as long as five months will now be completed in one cycle. The BSE has also decided to make mandatory for sellers to mention the share distinctive and ledger folio numbers in transfer deeds from June 1 in order to avoid bad deliveries as in the Reliance switched share controversy. At present, sellers are required to fill in their own and the company's names in the transfer deeds. In conjunction with SEBI, the listing reforms and other stockmarket reforms ( Outlook last issue) are all set to be launched by June. Says Damani: "For Bombay brokers, the capital adequacy level will be raised to Rs 10 lakh and an additional five per cent for those implementing the carry-forward system." 

Damani traces his success to his 15 years at Simplex Mills, where he was the youngest chief executive at 25 from 1962 to 1977. In 1978, he came to the BSE with Rs 25 lakh. In one year his portfolio doubled. Says Damani: "When I first came to Bombay from Bihar, the company I was working for allowed me for a months to manage the chairman's portfolio. Before leaving for Rajasthan to fight the 1957-58 elections, the chairman told me to be well-informed: get wedded to the phone, get wedded to the radio and read every possible newspaper. Those days I was constantly glued to the radio. When I heard about the Suez crisis, I decided to sell Bombay Dyeing and Standard Mills...both used to export to Europe those days. I bought Century Rayon and National Rayon, thinking the Suez crisis would check imports into India, improving their prospects. Then I came across Radio Moscow which threatened the UK and France to withdraw their troops. I reversed my decision. It paid off."

The quest for information is still there. Except that oday, it is 64 kilobytes per second leased lines, on-line terminals and fancy VSAT linkages throughout the country that keep Damani running.