How NSE Downplayed Co-location Scam Involving Chitra Ramakrishna

Chitra Ramkrishna, once known as the most powerful woman in India's securities market, has hit the headlines again.

However, this time, the former Managing Director and Chief Executive Officer of the National Stock Exchange (NSE), is in the news for serious allegations against her.

In its order recently, the Securities and Exchange Board of India (Sebi) said she was influenced by an unknown "yogi" in the appointment of Anand Subramanian as NSE's group operating officer and advisor to the managing director.

In the 190-page order, Sebi added she leaked key business secrets pertaining to day-to-day operations.

Sebi got the whiff of the irregularities while it was investigating NSE's co-locating controversy in which it was alleged that certain brokers had received preferential treatment and some officials of the NSE were hand in glove with them.

While investigating, Sebi found out several e-mails were exchanged between the then NSE chief Chitra Ramakrishna and an unknown person.

In January 2015, a whistleblower wrote to SEBI alleging a few brokers were able to log into the NSE systems with better hardware specifications while engaged in algorithmic trading, which allowed them unfair access and advantages.

It alleged that market manipulation has been taking place for several years at the NSE co-location centre.

It also said NSE had allowed non-empanelled Internet Service Provider (ISP) to lay fiber cables on its premises for few stock brokers.

Just a year later of these revelations, Ramakrishna resigned as the chief of NSE.

In 2019, SEBI came down heavily on NSE for alleged lapses in high-frequency trading offered through its co-location facility, directed the exchange to disgorge Rs 624.89 crore, and barred it from accessing the market for funds for six months.

Sebi found that NSE and its board were aware of such irregularities and misconduct by Ramkrishna but did not record the matter in the minutes of the meeting and submitted the report on the irregularities to Sebi only after repeated reminders.

Sebi had said NSE was aware that Ramakrishna had shared confidential information with an outsider and yet it tried to cover up the matter.

In 2018, Sebi had repeatedly sought clarification from the NSE.

The NSE submitted its detailed response along with a report of the forensic investigation conducted by Ernst & Young (E&Y) in which it was concluded that the said unknown person was Subramanian.

The regulator said despite being aware of the irregularities on the appointment of Subramanian, Ravi Narain, the former vice-chairman of the exchange, and the NSE had not recorded the matter in the minutes of the board meeting in the name of confidentiality and sensitive information.

In 2017, two of the 14 NSE's officials who received a show cause notice from Sebi for their alleged involvement in providing unfair access to some brokers had refuted the charges.

The irregularities in the colocation facility happened between 2010 and 2015.

Ravi Narain was the MD and CEO until March 2013. Ramakrishna succeeded Narain as MD and CEO and was in office until December 2016 before being forced out.

In their replies to SEBI's show-cause notices, both of them have said that they were not familiar with the technology and that they had gone ahead with the advice of the functional heads. They also said that they were not involved in the day-to-day operations of the colocation facility.