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NSE Rot Goes Deeper

By Debashis Basu
March 11, 2022 09:54 IST
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The rot is is not limited to Chitra Ramkrishna and the yogi, observed Debashis Basu.

IMAGE: Chitra Ramkrishna, the National Stock Exchange's former managing director, who was arrested on Monday, March 7, 2022. Photograph: PTI Photo

For the past few weeks, the media has been agog about a Himalayan yogi whose blessings alone were running the world's largest derivatives exchange, the National Stock Exchange, according to Chitra Ramkrishna, its former managing director.

As documented in the 190-page order of the Securities and Exchange Board of India, released on February 11, Ramkrishna referred to this 'unknown person' as 'thee' or 'swami ji' or 'your lordship' and he was communicating with her through an e-mail id --

When Sebi asked her about the person behind this e-mail id, she replied, 'Siddha Purusha/Yogi is a Paramahansa who may be largely dwelling in the Himalayan ranges. I have met him on occasions in holy places. No locational co-ordinates are given.'

Thanks to these and other such bizarre details, the NSE became the laughing stock of the world.

Forced to respond, the government has unleashed the Central Bureau of Investigation, leading to the arrest of Anand Subramanian, whom Ramkrishna had appointed in violation of all rules, and went on to give him jaw-dropping perks, promotions, and increments, which also violated established processes.

As the investigation proceeds, more arrests are likely, linked to the co-location scam at the NSE between 2010 and 2014, when a few brokers got unauthorised and preferential access to the NSE's co-location servers, allowing them to skim off huge profits.

The NSE is a high-technology platform and has near monopoly control over India's capital market.

How has it become a hotbed of scams and scandals?

There is no paradox here. Behind its enormous commercial success (an unheard-of operating margin of 70 per cent), the NSE is a symbol of absolute power with a history of bending rules to suit its ambitions and quash competition, as its founding team of Ravi Narain and Ramkrishna used its monopoly power for regulatory capture.

Sebi allowed the NSE to expand into new businesses, ignoring conflicts of interest, make illegal appointments to top posts, and work ruthlessly to destroy even a hint of competition.

But an MD communicating with a yogi for guidance on running the exchange was still a surprise.

How did the NSE, a first-line regulator, operating in a sensitive and highly regulated sector, overseen by a high-profile board, Sebi, and the finance ministry, come to acquire such enormous power and abuse it with impunity for so long? The answer: With the help of these same eminent people who were responsible for its oversight.

NSE board of directors

Over 15 years or so, Narain and Ramakrishna ensured that the NSE's board members (drawing among the highest sitting fees in India) were carefully selected to ensure staunch and unquestioning support after having delegated far-reaching powers to the MD.

Hence, when Sebi asked the NSE about the algo scam, the board's first reaction was there were no irregularities.

This was no surprise because the same board had allegedly irregularly appointed Ramkrishna MD in 2013.

The NSE board constituted a selection committee of Narain, S H Khan (former chairman of the NSE and IDBI), S Venkiteswaran (former NSE director and senior advocate), and Deepak Satwalekar (public interest director) on November 6, 2012.

The committee managed to hold its first meeting on the very day it was appointed, almost as if it was ready on the spot and to get cracking.

It met again, just two days later, to strongly recommend that an internal candidate was best suited, and Ramkrishna's appointment with a five-year tenure.

Sebi approval (required under the rules) was not sought.

No other candidate was considered for the post, even though the committee's mandate was to shortlist candidates from 'within the organisation, from other exchanges in the country, other parts of the financial sector in the country and exchanges globally'.

For the kind of money the NSE was paying it would have attracted the best of names from exchanges across the world.

After all, the much smaller BSE under Madhu Kannan had put together a crack team of professionals who had worked at the New York Stock Exchange and Chicago Mercantile Exchange.

While recommending Ramkrishna as MD, the committee also created a brand new designation of non-executive vice-chairman for Narain, ignoring the fact that the NSE could not possibly have both, chairman and vice-chairman, in non-executive posts.

It was as if the NSE was a personal fief of people from the founding team and when one of them stepped down, the next would automatically step in while the former was accommodated in another capacity.

The board saw nothing strange in Ramkrishna appointing Subramanian immediately after she became MD without any discussion with the nominations and recruitment committee (NRC) and bypassing all Sebi rules.

It apparently remained silent when he was promoted to group operating officer, again bypassing the NRC as well as stringent regulatory compliances and clearances.

Extraordinarily, he was even kept out of the list of 'key management persons', while enjoying the second highest remuneration and perks and being appointed to the boards of all NSE subsidiaries.

He had absolutely no experience of capital markets or technology to run a large and complex exchange.

The NSE ecosystem of influence is so strong that even after Ramkrishna left under a cloud, it did not bother to find someone within India or abroad with specific skills and qualifications to run it.

Instead, it chose a successor who had no experience of running an exchange, a real-time trading technology platform or capital market regulations.

Don't forget, the NSE scam and its abuse of power happened under the gaze of three successive Sebi chairmen, the worst happening under C B Bhave and U K Sinha.

In short, the rot goes far deeper and is not limited to the MD and the yogi.

The luminaries who have decorated the NSE's successive boards over the past two decades, the brass at Sebi and key officials in the finance ministry and a powerful politician have actively helped.

If the government is keen on a clean-up, these eminent men too must be made answerable.

Debashis Basu is the editor of

C B Bhave responds: No wrongdoing in my time

This is with reference to the article titled 'Eminent yes men behind NSE' by Debashis Basu, published in the Business Standard on February 28, 2022. The article describes at great length the problems with the appointment of Chitra Ramkrishna and Anand Subramanian at NSE.

The entire set of events at NSE described in relation to these events are dated November 6, 2012, and beyond. I demitted office in February 2011.

In the column, there is a reference to colocation scam as having happened between 2010 to 2014. The Securities and Exchange Board of India's order on colocation was passed in February 2021. It is a long order, but right in the beginning, the order states that the first complaint with regard to the abuse of the colocation facility was received by Sebi on January 8, 2015, almost four years after I left Sebi.

The article which mentions dates of appointment of Chitra Ramkrishna, formation of selection committee etc fails to mention the date on which Sebi received the first complaint on colocation.

Colocation was started in 2010, but by itself it is not a scam. It is a facility common in other jurisdictions as well. The scam was that an unfair advantage may have been provided to a broker(s) vis-a-vis the other brokers. This was brought to the notice of Sebi in 2015.

One could ask why it took Sebi four years (2015 to 2019) to pass an order in a matter in which the integrity of the market was questioned. However, it is clearly not for me to answer this.

Colocation facilities were offered by NSE to the brokers from 2010 onwards. When did the misuse of this facility start? We have no explicit statement on this in the Sebi orders. However, the order against OPG Securities gives us enough clues.

Sebi punished OPG Securities for connecting to the Secondary POP server on 135 days between January 2010 to April 5, 2014. (para 8.43). The profits of those days were considered illegal and OPG was asked to disgorge them.

The preceding para 8.42 clearly states that the 'connection to the Secondary POP server was first established on December 11, 2011.' No connection was made to the Secondary POP server before December 11, 2011.

Sebi's finding, therefore, is that there was no wrongdoing prior to December 11, 2011, that is till 10 months after I left Sebi.

It follows that the scam did not occur during my time at Sebi and it was brought to the notice of Sebi four years after I left the organisation.

The author is entitled to his opinion. But in the face of all these dates in these two cases, to drag my name and to say that worst things happened during my tenure is at best biased and at worst defamatory.

C B Bhave was Sebi Chairman between 2008 and 2011.

Feature Presentation: Aslam Hunani/

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