NSE co-location scam: The wheel turns as justice awaits

I have hope the Modi government will sincerely get behind at least some of the economic offenders in the co-location case, says Palak Shah, author of The Market Mafia.

NEW DELHI: The Sunday Guardian caught up with Palak Shah, author of the book The Market Mafia, at a coffee shop. We present excerpts from our freewheeling chat with Shah, who has in his writings shone a microscopic light on the happenings in India’s stock exchanges, markets and SEBI.

Q: Is the NSE co-location scam near its logical end?
A: Logical end? Oh, absolutely. In February 2022, it started when the CBI arrested former NSE MD and CEO Chitra Ramakrishna. But since then, the pace has slowed. Senior officers of the Home Ministry need to be aware of how the rank and file has been functioning in this case. After nearly seven years of media reporting on the NSE co-location scam, CBI finally sprung into action this year on Ramakrishna’s own admission that a Himalayan Yogi was guiding her in running the world’s largest exchange. There was utter disbelief when I first reported in The Hindu Business Line that Ramakrishna admitted to having known a Himalayan Guru, who according to her could “manifest at will mainly to comment on her curls” and even advise on key appointments at NSE. Even the most jaded business editors were in disbelief about what Ramakrishna told SEBI in what seems an effort to hide the true identity of the forces guiding her in the co-location scam. Through unfamiliarity with such matters, CBI officers may have ignored the fact that NSE was a private company. Or that its function was to toil day and night to generate super-normal profits for its foreign shareholders, some of whom were also based out of tax havens. To start with, the CBI sought permission from the NSE board to prosecute Ramkrishna (the Yogi must have laughed uncontrollably). Such permission, as per the rules, are sought only for public servants. Hence, it was a surprise for the CBI to seek permission from the NSE board to prosecute Ramkrishna, or even argue on it in the court. Especially, when some of the earlier board members had apparently remained silent at the many lapses and aspects of the wrongdoings during Ramakrishna’s and Ravi Narain’s tenure, which was when the co-location scam was at its peak.
In India, the case documents, charge-sheets and all judicial papers are cordoned-off from public scrutiny. As a consequence, it becomes painstakingly difficult to understand what was cooking inside. Our only hope would have been to have a Himalayan Guru on our side too. This guru could manifest at will to enlighten us on the botched up investigations and the case, but we were not given such wisdom from a source, the identity of which is yet to be revealed. From what is there in the public domain, investigators have so far failed to build up a sufficient case against Ramkrishna, Narain and others in the co-location scam. Instead, there is now a limited charge of an illegal appointment made by Ramkrishna, and that’s it. She was granted bail in September in the co-location matter with an observation of the court that CBI did not have the required sanction to prosecute her. Just imagine, investigating agencies now require sanction from the board of a private company to prosecute that company’s officials. The relevant higher authorities need to see if the checks and balances, the accountability, are working in the co-location investigations.

Q: Ramakrishna is still in jail, although Ravi Narain got bail on health grounds.
A: She is still in jail in the phone tapping case, in which bail may soon come, considering that the former Mumbai police commissioner, whose company is alleged to have tapped the phones, got bail. The CBI has not been able to fix accountability on the other key conspirators and accused in the co-location scam, nor follow the trail provided in the forensic reports and SEBI’s own investigations. The names of these accused are known throughout the financial markets—the fake degree, the data theft, illegal set-up of servers, software, the money trail to tax havens, everything. These ought not to be given a pass. Also, investigators went behind just one broker, and like SEBI, it pinned the entire scam on Delhi based OPG, despite the forensic audit pointing to a wider trail. OPG or Sanjay Gupta may not be the poster-boy but merely a cog in the wheel of a larger conspiracy, which incidentally has been unravelled in great detail by the media. Yet for the agencies, the co-location scam manifested on its own and there were only three players in it, whom they arrested. Higher authorities need to ensure that the case not go down as another unsolved mystery. I have hope that the Modi government will sincerely get behind at least some of the economic offenders in the co-location case. The CBI has done so in the ICICI Bank and Chanda Kocchar loan scam matter. For that, the Modi government needs to be thanked.

Q: Is everything fine with India’s exchange space?
A: An equity exchange is on ventilator and a commodity exchange is desperately trying to find some life support. Trading volumes and business of both the exchanges is turning out to be a Shakespearean tragedy. The technology contract of an exchange, which is core to run its daily operations like trading, clearing and settlement etc, was extended for three months up to 31 December. Just two days left and the market is unaware if the exchange is going to run with the same technology without tech support and back-up, or it will avail the support by extending the contract or get new technology that it had commissioned a couple of years ago. We are talking about an emergency of gargantuan proportions in India’s exchange space and nobody seems to notice. Thousands of crore worth of positions are outstanding on this exchange as on date and there is no clarity of the core technology implementation. There is no clarity if the recently conducted mock trading sessions of this exchange were a success or failure. Who is to be held to account? But the system must cleanse itself of ineptitude and inefficiency, which cannot be without the backing and support of the regulatory officials.
The equity exchange in question is on life support today as its net worth is eroding and may have even dipped below the regulatory requirement. The less said is better of an exchange that abandoned the path to a court case that could have given it more than Rs 1,000 crore, something which was as easy as plucking a low hanging fruit. A tribunal had already granted this award in a watertight case and the matter had to be argued in the Supreme Court against the final plea of the opposite party. Since, it was likely that the case would go in favour of the exchange, lawyers hired by the other parties ensured that the case kept moving from one date to another and the exchange appears never to have pressed its objection strongly to such delay. Such backtracking is no less than a conspiracy. Fact is that the exchange’s top management including MD and CEO is facing SEBI inquiries, show cause notices, adjudication and yet drawing fat salary packages and even hoping for extension of tenure. Clearly what is needed is high-level attention so that small and medium investors are protected.

Q: How did we reach this stage?
A: Under the regime prior to the Modi government, many unscrupulous elements got strategic appointments in the financial market establishment, especially stock market related institutions. Even after the new government came to power in 2014, the manoeuvring of such elements continued for a while as they were eating the system from the inside by promoting mediocrity to only derive advantage from it. My book The Market Mafia details the play of such vicious forces. The Modi government has tried extremely hard to break lobbies and monopolies but the decades of dirt cannot be removed so soon. There was a leadership crisis in Mumbai’s financial markets and key institutions faced an image problem. The new SEBI chief Madhabi Puri Buch is now kicking inaptitude in the butt and refurbishing the regulatory body. Some of her moves have rattled the rank and file. But she has acted rightly since revival of the watchdog requires a tough task master. The process of weeding out dishonest officials is slow, but a few are staring at the end of their tenures and an extension is unlikely. Until then, the wheel is turning but justice waits. The record of any exchange manager can be found in the health or otherwise of the exchange that he or she had been managing. This simple test needs to be mandatory before appointments get made in a sector that has now drawn millions upon millions of new investors even in the rural sector. Prime Minister Modi has the determination to ensure that a microscopic examination be made by honest and competent officers so that elements that specalise in using unethical and illegal means to profit at the expense of small and medium investors face the accountability that they avoided until recently.