“I could not agree terms with DSE on the back of the Sebi compensation changes and the existing terms on offer were not sufficient to warrant a move out there to run it, given that the entrepreneurial elements attract me most to a venture,” Mr Misra said.
3 comments:
It's true that a robust compensation structure is essential to attract talent. At the same time, as the Jalan Committee pointed out, Stock Exchanges are not just another type of business organizations, they are Market Infrastructure Institutions and front line regulators. As you wrote in an earlier article, an SE is today essentially a network of computers. The IT system of a SE allows price discovery, trading, dissemination of market information, and detection of market abuses. An excessive focus on profits (and profit linked incentives) may lead to these institutions compromising their regulatory role. The NYSE was registered with the SEC as a national securities exchange in 1934. Since then to 1999, there was not even a single enforcement action against it. Since 1999, there have been three. In the most recent case (September 2012), the NYSE agreed to pay a penalty of $5 million for allegedly making the market data available to its clients through its proprietary systems a few milliseconds before it was released to the entire market, which can translate into a huge advantage in terms of algorithmic trading. Though there is no suggestion that this was done intentionally, still it is definitely a red flag. http://www.sec.gov/litigation/admin/2012/34-67857.pdf
-Mangesh Patwardhan
Mangesh, the regulations don't restrict pay - so the excessive focus on profits is not the issue sought to be tackled. But performance based pay is outlawed. That is plain silly.
Sandeep, I agree outlawing performance based pay IS silly, as any employee is by definition expected to perform. But today performance in for profit entities is mostly measured by internal metrics as turnover or profit, or by external ones such as the stock price. So when SEBI says no to `performance based pay' for SE MD, maybe this kind of turnover / profit based performance (or stock price performance once the exchanges are listed) is what SEBI wants to guard against. I think the challenge here is to evolve suitable performance criteria for the key management personnel of SEs that go beyond numbers and factor in the market facilitation and regulatory roles that SEs exist to perform. This is the same kind of issue we have seen in the context of MFIs.
By the way, I did not find this `performance based pay ban’ inside the regulations. Is it part of the norms specified by SEBI under Regulation 27(3), or approval conditions under Regulation 27(4)?
-Mangesh Patwardhan
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