The National Stock Exchange Ltd. building with the new logo in Mumbai (Photographer: Vishal Patel/BloombergQuint)

Top NSE Officials ‘Facilitated’ Co-Location Fraud, Says SEBI Show-Cause Notice

The market regulator has alleged that former top-ranking executives of the National Stock Exchange of India Ltd., Ravi Narain, Chitra Ramkrishna and Subramanian Anand, “facilitated fraud and manipulation” by failing to take preventive and curative measures against brokerages gaining preferential access to the bourse’s servers.

The Securities and Exchange board of India, in a two-part final show-cause notice, named three brokerages. And it alleged “active connivance of NSE officials”. The notices offer a summary of the regulator’s three-year-long probe into allegations that some broking firms gained preferential access to the NSE’s high-speed algorithmic trading platform through its co-location service.

The three brokerages named are OPG Securities Ltd., Way2Wealth Brokers Pvt. Ltd. and GKN Securities Ltd. They allegedly had a latency advantage (lower time for data to travel) over other NSE members which resulted in monetary gains for them, according to copies of the notices reviewed by Bloomberg Quint.

An email sent to the SEBI spokesperson for further comment went unanswered.

Also read: NSE Earns Over A Third Of Revenue From Co-Location Service Amid Probe

The Allegations

SEBI has charged Narain, Ramkrishna, Anand, Ravi Varanasi and Ravi Apte, among others, with fraud, violation of the SEBI Act and Securities Contract and Regulations Act, according to the notices.

Narain and Ramkrishna are former managing director and chief executive officers, Anand the former group operating officer and Apte the former technology head. Varanasi is the current head of business development at the exchange.

To be sure, the show-cause notices don’t discuss any direct collusion or facilitation of illegal access by these NSE officials. But they point out that the NSE didn’t have a fair and equitable access policy, as admitted by Narain and Ramkrishna in their hearings with SEBI and documented in the notices.

To the question on how the principle of fair and equitable access was ensured, the notices quoted Narain as saying that “equal and fair access was seen to be an outcome of ensuring adequate capacity at all times as the market gradually grew and ensure that no crowding out could take place”.
Chitra Ramkrishna, according to the notices, said “while the principles of equal and fair access would need to be embodied, in the actual practices and implementation, the respective departments may have had their own monitoring ranges (i.e. a range which was acceptable as a level of service)”.

The notices point out that adherence to the principle of fair and equitable access was left to the technology team without any specific guidance. Narain, Ramkrishna and Anand failed to perform their role in establishing adequate systems, according to the notices.

Also, the manner in which OPG continued to gain preferential access day after day “indicates complete laxity and dereliction of duty” by the three senior-most NSE officials, the notices said.

By not taking preventive as well as curative measures proactively, Ravi Narain, Chitra Ramkrishna and Subramanian Anand facilitated fraud and manipulation by OPG.
SEBI Show-Cause Notice

Several other NSE officials stand accused of not having prevented manipulation and of failure to monitor systems. The three brokerages have been accused of gaining unfair access.

OPG displayed disregard for the norms laid by NSE, yet NSE continued to permit OPG to connect to secondary servers. This consistent reluctance on the part of NSE to prevent OPG in accessing the secondary server ahead of others on continuous basis, allowed OPG to have free access to secondary server to gain undue advantage. It is alleged that such regularity of success by OPG would have been possible only with active connivance among NSE and OPG.
SEBI Show-Cause Notice

BloombergQuint has written to Narain and Ramkrishna for their comments and is yet to receive any response. We were not able to reach Subramanian. A spokesperson for OPG Securities told BloombergQuint over the phone that the brokerage would not like to offer any comments as the matter is with the regulator and sub judice.

While OPG is at the centre of most of the investigation, the other two brokerages have also been accused of using separate means to obtain unfair access.

In a statement to BloombergQuint, GKN said it “never acted in bad faith and always strictly adhered to all laws of the land” and “took all requisite permissions from NSE to establish any connectivity”. A detailed email sent to Way2Wealth remained unanswered.

Also read: Delay In Co-Location Settlement Pushes NSE Investors To Look At Exit Options