NSE Co-Location Scam: Ajay Shah Barred From Holding Any Position In Listed Firms, 2 Formers CEOs Asked To Disgorge 25% Salaries

India’s securities market regulator Securities and Exchange Board of India (SEBI) on Tuesday (Apr 30) directed National Stock Exchange (NSE) to pay more than Rs 625 crore in the case of misuse of its co-location facility, PTI reported

SEBI has been probing alleged lapses in what has come to be known as the NSE co-location scam

The NSE co-location scam relates to allegations of market manipulation at the National Stock Exchange of India (NSE) by some members of the exchange by front running other members by getting access to market price information earlier than others. The allegations first surfaced after a whistle-blower wrote a letter in 2015 on the modus operandi of the market manipulation.

The whistle-blower complained connivance of insiders by rigging NSE’s algo-trading and use of co-location servers by a set of brokers. The whistle-blower alleged that trading members were able to capitalise on advance knowledge by colluding with some exchange officials.

The NSE co-location case is also being investigated by the Central Bureau of Investigation (CBI) and the Income-tax Department (I-T department) who are probing the involvement of NSE and SEBI officials as well as NSE's former and current executives and brokerages.

The focus of SEBI investigation was on the alleged conflict of interest in the dealings of NSE with a private entity Infotech Financial Services Pvt. Ltd and role of Ajay Shah, currently associated with Ministry of Finance’s think tank NIPFP. Ajay Shah, his wife Susan Thomas (who is associated with Indira Gandhi Institute of Development Research), her sister Sunita Thomas (who is the director of Infotech Financial Services Pvt Ltd) were accused of misusing market related confidential information and sensitive data.

Ajay Shah and his wife Susan Thomas were actively associated with NSE and its subsidiary companies since 1994 onwards.

Besides, the bourse's two former chief executive officers -- Ravi Narain and Chitra Ramkrishna -- have been asked to disgorge 25 per cent of respective salaries drawn during a certain period.

Chitra Ramakrishna and Ravi Narain were said to have enjoyed close proximity to former Union Finance Minister P. Chidambaram and K.P. Krishnan, who served as the Joint Secretary and Additional Secretary for the capital markets

Chitra Ramakrishna and Ravi Narain have also been prohibited from "associating with a listed company or a Market Infrastructure Institution or any other market intermediary for a period of five years," SEBI said in a 104-page order.

According to the order, the exchange has also been prohibited from accessing the securities market directly or indirectly for six months.

The bourse "shall disgorge an amount of Rs 624.89 crore... along with interest calculated at the rate of 12 per cent per annum from April 1, 2014 onwards to the Investor Protection and Education Fund (IPEF) created by Sebi," the order said. who had been the longest serving Joint Secretary and Additional Secretary for the capital market.

SEBI order also directed Ajay Shah) not to hold, directly or indirectly, any position in the management of and/or in the Board of or be associated in any manner and in any capacity, with any Stock Exchange, Clearing Corporation, Depository, recognized or registered by SEBI and/or with any intermediary registered with SEBI or their related entities and/or with any company listed in any of the Stock Exchanges recognized by SEBI, for a period of 2 years.