In 2019, the Securities and Exchange Board of India (SEBI) took stringent actions against the National Stock Exchange (NSE) for alleged lapses in high-frequency trading (HFT) through its co-location facility. The regulator ordered NSE to disgorge ₹624.89 crore and barred several officials, including former managing directors (MDs) and CEOs Ravi Narain and Chitra Ramakrishna, from associating with listed companies for five years.
Allegations and Whistleblower’s Role
NSE was accused of allowing some brokers, notably OPG Securities, preferential access to the co-location facility, giving them an unfair advantage in trading. This issue surfaced through a whistleblower’s complaint in 2015, alleging that certain brokers had superior hardware and faster access to NSE’s systems, leading to significant financial gains.
Investigations and Findings
The co-location scam allegations pertained to the period between 2012-2014, during which the NSE disseminated price information through a unicast system, allowing brokers to access market data faster than others. Several investigations, including Deloitte and EY reports, failed to find direct evidence of collusion or connivance among NSE officials, reducing the likelihood of conspiracy charges against them.
SEBI’s Initial Orders and Disgorgement
In 2019, SEBI ordered the NSE to disgorge ₹624.89 crore and barred the exchange from raising funds for six months. Additionally, Narain and Ramakrishna were ordered to return 25% of their salaries earned during a specific period.
SEBI’s Adjudication in 2021
In a 2021 adjudication order, SEBI found that the NSE had failed to comply with the Stock Exchange and Clearing Corporation (SECC) Regulations, holding Narain and Ramakrishna vicariously liable for the lapses. SEBI ruled that NSE did not provide a level playing field for all members and that the lapses were serious enough to warrant a monetary penalty.
SAT’s Ruling in 2023
In January 2023, the Securities Appellate Tribunal (SAT) overturned SEBI’s disgorgement order, criticizing SEBI for directing NSE to investigate itself. However, SEBI imposed a penalty on OPG Securities for logging into the secondary server to gain illegal profits.
CBI Investigation and Arrests
The Central Bureau of Investigation (CBI) registered an FIR against OPG Securities in 2018, accusing its promoter Sanjay Gupta of manipulating NSE’s system to gain early market access. The investigation revealed over 670 illegal logins between 2010 and 2015. Chitra Ramakrishna was arrested in connection with the scam and was also implicated in a separate money laundering investigation by the Enforcement Directorate in 2022.
The Faceless “Yogi” and Subramanian’s Role
SEBI’s investigation uncovered that Chitra Ramakrishna was allegedly influenced by a mysterious “Yogi” who guided her decisions, including the appointment of Anand Subramanian as Group Operating Officer. This led to financial benefits for Subramanian, who exploited Ramakrishna through different personas.
Multiple-Choice Questions (MCQs):
- What was the amount SEBI ordered NSE to disgorge in 2019?
- a) ₹500 crore
- b) ₹624.89 crore
- c) ₹725 crore
- d) ₹850 crore
Answer: b) ₹624.89 crore
- Who were the former MDs and CEOs of NSE implicated in the co-location scam?
- a) Sanjay Gupta and Ravi Narain
- b) Chitra Ramakrishna and Ravi Narain
- c) Anand Subramanian and Sanjay Gupta
- d) Chitra Ramakrishna and Umesh Jain
Answer: b) Chitra Ramakrishna and Ravi Narain
- What was the main allegation against OPG Securities in the co-location scam?
- a) Misappropriating funds
- b) Illegal access to tick-by-tick data feed
- c) Insider trading
- d) Bribing NSE officials
Answer: b) Illegal access to tick-by-tick data feed
- Which agency registered an FIR against OPG Securities in 2018?
- a) Enforcement Directorate
- b) SEBI
- c) Central Bureau of Investigation
- d) Income Tax Department
Answer: c) Central Bureau of Investigation
- In what year did SEBI first take action against the NSE for the co-location scam?
- a) 2018
- b) 2019
- c) 2020
- d) 2021
Answer: b) 2019
- What unusual figure allegedly influenced Chitra Ramakrishna’s decisions at NSE?
- a) A broker
- b) An anonymous whistleblower
- c) A faceless “yogi”
- d) SEBI
Answer: c) A faceless “yogi”