Skeletons tumble out of NSE in Yogi saga: Fat fingers, flash crash, algo trades

Technology is a tiger that everyone is riding, India's top stock exchange NSE's then CEO Chitra Ramkrishna had told PTI eight years ago.

At the time, she herself was riding the tiger at the helm of the National Stock Exchange, which had overtaken over 100-year-old Bombay Stock Exchange as India's biggest bourse within a year of its launch in 1994.

Ironically, it was a major technical glitch in the NSE'S sophisticated algorithm-based superfast trading that had propelled her to the top as its first woman CEO in the male-dominated world of stock trading: On the morning of October 5, 2012, NSE was hit by the so-called 'fat finger trade' which resulted in a trade getting executed in a fraction of a second for a whopping amount of Rs 650 crore and triggering a massive 'flash crash', wiping off nearly Rs 10 lakh crore from investors' wealth in the Indian stock market within seconds.

Such was the momentum that a mandatory trading halt could be put in place only after a sudden 16 per cent crash in the benchmark index Nifty -- it missed two check-posts, first at 10 per cent and then at 15 per cent within six seconds.

The madness ended after 15 minutes but still someone had to pay the price. The head that rolled was that of NSE CEO Ravi Narain. A few months later, Narain's baton was formally handed over to his deputy, Chitra Ramkrishna, on April 13, 2013.

Today, the 59-year-old Ramkrishna stands at the centre of an equally bizarre scandal after it was revealed that she was guided by a mysterious "Himalayan Yogi" in taking key business decisions of the exchange – decisions that impacted the business of an exchange which recorded a daily average turnover of well above Rs 2 lakh crore last year and which ranks as the world's largest derivatives exchange and the fourth largest for cash equities in terms of the number of trades. 

Several people aware of the developments said on condition of anonymity that the time has now come for a deep-cleansing of this marquee institution and directions have come right from the top to all regulatory, enforcement and investigative agencies to get to the bottom of the murky goings-on amid suggestions that malpractices including serious cronyism were covered up by officials, even though it was known to them several years ago.

A former top regulatory official, who had looked into the exchange's affairs at that time very closely, said the top management and some key directors clearly failed to discharge their duties, largely because they trusted people at an institution that serves as a frontline regulator for the Indian capital market, where NSE has a near-monopoly with over 90 per cent market share in some key segments.

Virtually every regulatory, administrative and probe agency in the country is on the job and those under the scanner include all directors who served on the NSE board during those years, the top management personnel as also those from the regulatory and government sides, a senior official said.

Issues being probed are not limited to identifying the 'Yogi', but also encompass much-bigger concerns such as lapses at various levels, including the board, the regulator and the government, including those relating to the controversial co-location facilities and high-frequency trades, the official added.

Another ex-regulator, who also did not wish to be named, said NSE owes its existence and rise to a collective effort of the government, regulators and the industry, and it could be put back in shape by a group of committed and visionary individuals.

However, it appears that a coterie comprising former and serving bureaucrats, some highly ambitious brokers, top government functionaries and a few corporate executives, including those at the exchange, created and exploited various loopholes for their own personal gains, he added.

With the years-old case finally attracting public attention, officials said, directions have come from the top now that no one should be spared and all veils must be lifted to expose every single wrongdoing or lapse, from the smallest to the biggest one.

The former regulator said it was astounding that the entire saga has remained buried for almost a decade despite multiple orders passed by the Securities and Exchange Board of India (Sebi), which points to the power play at work in this cocktail of corruption, deceit, money laundering, illicit trading and business rivalry.

Such concerns are also being cast on the "fat finger trade" fiasco of October 5, 2012. 

The exchange was also told by Sebi it was wrong in resuming the trade in 15 minutes, as against a much larger trading halt that was required under the regulations, and in not informing the other major stock exchange, the BSE.

"Fat-finger trade" is a term used for punching error or wrong pressing of orders on the trading terminals. But there were allegations that the crash was triggered by something else -- perhaps wasn't a technical error but a deliberate manipulation. The exchange was later censured by Sebi after a probe and was asked to beef up its systems and processes. 

Yet, what followed appears to have been quite the opposite, at least at the human resource level.

Soon after her elevation, Ramkrishna appointed Anand Subramanian as her adviser, and later promoted him to Group Operating Officer at a huge salary of Rs 4.21 crore. He also happened to be the husband of her friend and an NSE staffer. The NSE board turned a blind eye to the appointment on the grounds that he was a consultant, and that the CEO had the authority to appoint him.

A much bigger lapse was revealed when a Sebi-ordered audit and a regulatory intervention in October 2013 found out about the presence of an unknown person, who Ramkrishna said was a 'Himalayan Yogi' and her spiritual mentor, guiding virtually all her business decisions, including the controversial appointment and promotions of Subramanian.

The audit uncovered several email exchanges between Ramkrishna and the unidentified yogi.

In its final report, sometime in October 2016, the audit and the bourse dismissed the information exchange, which the regulator had found to be sensitive, as a routine matter by declaring that Subramanian himself was posing as the Yogi to manipulate Ramkrishna and all was well since both of them were quitting the NSE, the official said. Ramakrishna left in December 2016.

It was clearly a white-wash by the exchange in an attempt to keep the scandal under wraps, and to allow Ramkrishna a graceful exit, said the official, adding that Sebi in its final order had refused to accept that Subramanian was posing as the yogi.

Multiple people, including those who worked with the top leadership of the exchange at that time and at regulatory and government departments, said it looks almost certain that this Yogi is an imaginary identity created by one or multiple people, including some in key positions to control Ramkrishna.

Sebi has levied a fine of Rs 3 crore on Ramkrishna, Rs 2 crore each on the NSE, Narain and Subramanian and Rs 6 lakh on V R Narasimhan, who was the chief regulatory officer and chief compliance officer.

In addition, Sebi has barred the NSE from launching any new product for a period of six months, while Ramkrishna, Subramanian and Narain have been restrained from associating with any market infrastructure institution or any Sebi-registered intermediary for 2-3 years.

NSE said there have been several changes at the board and management level at the bourse over the last few years and it has operationalised the directives of Sebi on various matters over the years and has taken measures to further strengthen the control environment, including the technology architecture.

The exchange also said it is committed to the highest standards of governance and transparency and will extend full co-operation to the regulator for a satisfactory closure of the matter.

Ramkrishna was part of the initial leadership team selected by the government to set up NSE, which got incorporated in 1992 and became operational in 1994. She was the third person to head the exchange after R H Patil, its first chief, and Narain.

Incidentally, she was also part of a team that drafted the legislative framework for the securities market regulator Sebi in 1987.