Algo Trading Case: SEBI Imposes Rs11 Crore Penalty on NSE, Chitra Ramkrishna, Ajay Shah, Ravi Narain and 4 Others

Moneylife Digital Team 01 July 2022

Investor Interest

In an order which came late on Thursday evening, the Securities and Exchange Board of India (SEBI) imposed penalties totalling Rs11 crore on eight entities, including National Stock Exchange (NSE) and its former chiefs Chitra Ramkrishna and Ravi Narain in a case pertaining to software related to algorithmic trading and the dark fibre issue that was first reported by Moneylife.

While Ms Ramakrishna and Mr Narain have to pay Rs1 crore each, the regulator had also imposed penalties on other senior NSE officials, such as Suprabhat Lala (who has been fined Rs1 crore) and taken into account conflicts of interest between him, his wife, Sunitha Thomas, her company and the academic duo Ajay Shah through his wife. Specifically, NSE and its senior officials—Mr Narain and Ms Ramkrishna – failed to take cognisance of the issues of conflicts of interest with respect to Mr Shah, Ms Thomas, Mr Lala and Infotech Financial Services Ltd.

SEBI has slapped a penalty of Rs3 crore on Mr Shah – who was on the board of NSE's subsidiary NSSCL, Rs2 crore on Infotech Financial Services – a company that develops algorithmic software and obtained exclusive stock market data from Mr Shah. A fine of Rs1 crore each has been imposed on Infotech directors, Ms Thomas and Krishna Dagli. Ms Thomas is the wife of Suprabhat Lal and sister-in-law of Mr Shah.

According to SEBI, the case relates to NSE not awarding the contract for computing liquidity index (LIX) to its own specialised subsidiary, IISL and instead awarding it to Infotech indicating undue support to the company.

SEBI says that NSE and it's then officials—Mr Narain and Ms Ramkrishna—are certainly liable for not taking any precaution or checking the antecedents of Infotech as an algo software vendor in the securities market and failed to look at the possible conflict of interest with respect to Mr Shah, Ms Thomas, Mr Lala and Infotech at the time of awarding the contract.

"Ajay Shah, Infotech, Sunita Thomas and Krishna Dagli have collusively worked to fulfil their commercial goals by fraudulently using the data that was obtained by them from NSE to develop algo trading software," SEBI says in its 86-page order.

SEBI in its order also said that Ajay Shah and Infotech – along with its directors – made huge unfair gains by preparing software related to algorithmic trading at the cost of other investors who did not have the access to such software developed on the basis of confidential data shared by NSE.

Further, SEBI charged Ajay Shah that he—in connivance with Infotech, its directors and with NSE and its officials – employed a device wherein the confidential and sensitive data provided by NSE for being used for research for LIX project was misused for creating algo trading software for sale to market participants for dealing in securities market.

The regulator said that Ajay Shah and Infotech along with its directors made huge unfair gains by preparing software related to algorithmic trading at the cost of other investors who did not have the access to such software developed on the basis of confidential data shared by NSE.

SEBI on receipt of various complaints alleging irregularities in the matter of co-location (Colo) and corporate governance at NSE initiated examination with respect to members of board of directors of the Exchange and its senior management in relation to their dealings with Ajay Shah and others for the period 2009 to 2016.

Earlier this week, SEBI had slapped a penalty of Rs7 crore on the NSE for irregularities in the dark fibre (server co-location) case. In total, 18 entities were fined with the aggregate amount at Rs44 crore in the case.

The NSE Colo scam has been documented by Moneylife editors Sucheta Dalal and Debashis Basu in their book Absolute Power: Inside Story of the National Stock Exchange’s Amazing Success, Leading to Hubris, Regulatory Capture and Algo Scam, released in June 2021. SEBI had been sitting on this information since 2014 and has issued its order only now.

Read our coverage on NSE Algo Scam here https://www.moneylife.in/tags/nsealgoscam.html

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