Based on the forensic audit reports in the algo scam, enforcement proceedings have been initiated against the National Stock Exchange (NSE), its past and present officials, stock brokers and other connected entities, says the ministry of finance.
Subhash Chandra Garg, secretary in the department of economic affairs under the ministry, while replying to a letter from Bharatiya Janata Party (BJP)'s member of Parliament (MP) Dr Kirit Somaiya, stated, "The investigation in the matter, taking into account the findings made in the forensic audit reports and other available facts, has since been completed. Based on the findings of the investigation, enforcement proceedings have been initiated against the NSE, the former and present officials, stock brokers, their directors, employees and other connected entities and individuals for violation of provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations 2003, SEBI (Stock Exchange and Clearing Corp) Regulations 2012 and various circulars and direction issued under SEBI Act, 1992."
In his several letters, Dr Somaiya, the MP, has been asking for information about NSE's alleged non-transparent functioning or favours to a few brokers and special forensic audit.
"SEBI has received inputs from forensic auditors and technical entities and action is being initiated against institution and individuals in NSE co-location case. The action will be made public in a few days," Mr Tyagi had said.
While the algo scam has been known for three years now, since Moneylife exposed it in June 2015, SEBI hasn’t shown much action. Taking a lead over SEBI, on 30 May 2018, CBI filed a first information report (FIR) against Sanjay Gupta, owner and promoter of OPG Securities Pvt Ltd, Aman Kakrady (brother-in-law of Sanjay), Ajay Shah (who is alleged to have facilitated Mr Gupta by developing and providing Algo software Chankaya) besides some unnamed officials of the NSE and SEBI.
The nine-page FIR, filed on 30th May, is based on ‘source’ information; but it goes straight to the issues that SEBI officials have been shirking for three years. In these three years, the main investigation into this issue was directed by the highly regarded chairman of SEBI’s technical advisory committee (TAC), headed by Prof Ashok Jhunjhunwala.
Later in July, SEBI issued show causes notices (SCNs) to 15 entities including the NSE, Ravi Narain and Chitra Ramakrishna, both former managing directors of NSE and Mr Shah, a former official at the ministry of finance along with some brokers.
In 2017, NSE submitted to SEBI a forensic audit report related to its colocation (colo) activities in its cash market, currency derivatives, and interest rate futures markets. The report was prepared by Ernst and Young and Hyderabad-based Indian School of Business (ISB).
Soon, the income-tax (I-T) department conducted raids on premises of top officials of NSE and brokers named in the co-location issue. A report from Moneycontrol.com had stated "These officials and brokers included NSE's former Managing Director (MD) and Chief Executive (CEO) Chitra Ramkrishna, Suphrabhat Lala, and Sanjay Gupta, promoter of OPG Securities."
In the colo issue, there are two detailed reports. One by SEBI’s technical advisory committee (TAC) and a forensic audit report from Deloitte Touche Tohmatsu India LLP (Deloitte). The detailed investigation by TAC and forensic audit by Deloitte pointed out how brokers could get advantage in connecting to the NSE’s servers because the Exchange had no ‘load balancers’ and ‘randomisers’ in its systems architecture. Both the reports also said, Delhi-based OPG Securities was consistently able to connect to NSE’s trading system ahead of other trading members, as alleged by the whistleblower’s letter. The TAC also found that the architecture of NSE with respect to dissemination of tick-by-tick (TBT) through TCP/IP was prone to manipulation/abuse. (Read: TAC Report Proves Systemic Lapses at the NSE
It may be recalled that Moneylife was the first to expose this scam in mid-2015, for which NSE had filed a defamation case against us. A single-judge had penalised NSE for Rs50 lakh for having filed a case against us. After filing an appeal against the order, NSE paid up the penalty. Meanwhile, in the wake of the scam, the top brass of NSE had to resign and a new management team took charge.
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