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Ajay Shah: Cambridge Analytica-style mastermind of financial markets

NewsAjay Shah: Cambridge Analytica-style mastermind of financial markets

Ajay Shah is alleged to have lobbied for NSE, using his clout in the Finance Ministry.


The recent FIR by the Central Bureau of Investigation (CBI) on Ajay Shah has confirmed murmurs that were doing the rounds of exchange circles about the involvement of insiders in the colocation scandal. The CBI probe and the resulting raid laid bare the claim of India’s largest exchange, National Stock Exchange (NSE) of being the provider of a transparent and unbiased trading platform, and brought to the fore the murky dealings of a coterie.

NSE was the first exchange in the country to provide a modern, fully automated screen-based electronic trading system, which offered easy trading facility to the investors spread across the length and breadth of the country. Were some of those who were credited with doing this herculean job also the ones who perpetrated the colocation scandal and illegally benefited from it, with the tacit blessings of those at the helm of power at the time? Among names of alleged insiders is that of Ajay Shah, who continues to be employed with National Institute of Public Finance and Policy (NIPFP) as faculty.



The CBI’s probe revealed that Ajay Shah collected NSE trade data in 2005-06 under the garb of doing research, while he was employed with Centre for Monitoring Indian Economy (CMIE). He was seen by the probe as being instrumental in the exploitation of the NSE TBT (Tick-By-Tick) architecture. In this architecture, data was disseminated in a sequential manner, whereby a stock broker who connected first to the server of the stock exchange received a “tick”, i.e. market feed, before the stock broker who connected later. This gave undue advantage to entities that were able to connect to the exchange server earlier than others.

As CBI details, Ajay Shah helped develop the algorithm software for OPG Securities, having a brilliant insight on the NSE server and its algorithms. CBI has alleged that 90% of the time, OPG Securities was first to access the NSE servers and thereby gained unfair advantage over other entities, thus making undue profits from their consequent trades. CBI has found that Sanjay Gupta, the owner and promoter of OPG Security Pvt Ltd used the server architecture of NSE with the help of Ajay Shah and may have shared part of the proceeds.Ajay Shah may have designed such algo software for some other firms as well, with profit sharing agreements such as Alpha Group FPI (Singapore) and Omnesys. Shah, along with his wife Susan Thomas developed NIFTY50, which is the most successful product of NSE. However, in an unprecedented gesture, the NSE has been giving Ajay Shah and Thomas a hefty annual royalty as a certain percentage of the income generated of Nifty trading. It may be noted that Nifty contributes nearly 80% of the turnover of NSE. This was while the couple is doubling as faculty with government institutions. Susan is a professor in Indira Gandhi Institute of Development Research (IGIDR). This information was, however, withheld from the public when the NSE filed its red herring prospectus for the now “on-hold” IPO.

Ajay Shah, who is a professor with NIPFP, is alleged to have lobbied for NSE, using his clout in the Finance Ministry and also “influenced” FIIs and PNote activities on NSE. Ajay Shah is said to have gained entry into the good books of the then Finance Minister, P. Chidambaram during 1997 when he and his wife were working on the methodological design of NIFTY50 and were creating the algorithm for it. He was invited as an expert in front of Parliament’s Standing Committee on Finance, which was deciding on amendments to the law to support cash settlement required for index derivatives. Ajay presented his findings before the then Finance Minister, P. Chidambaram in 1997.

It is said that OPG Securities Pvt Ltd was given access, using the colocation facility during the period 2010-12 that enabled it to log in first to the exchange server of NSE and receive data before any other broker in the market. The colocation facility offered by the NSE allowed low latency and fast execution to its trading members. This set-up of server gave a 10:1 speed advantage in comparison to other brokers. It is reported by an insider that in 90% of the cases, OPG Securities was the first to log in.


Ajay Shah has a degree in Aeronautical Engineering from IIT-Bombay and PhD in Economics from UCA, Los Angeles. Prior to becoming a professor at National Institute for Public Finance and Policy (NIPFP) since 2007, he also held positions at the CMIE (Mumbai), IGIDR (Bombay) and the Ministry of Finance. Over the past decade, he was extensively involved in the policy process in the reforms of the equity market and the new pension system.

Currently, his wife Susan Thomas is a faculty member at IGIDR (Mumbai) and also served as a member/chair of various committees constituted by SEBI, RBI and NSE on secondary markets, government securities, and foreign exchange.

It may be noted that the entire colocation issue started around 2010. Prior to this, the then chairman of SEBI, C.B. Bhave had sent Prof Phatak and some others from SEBI to the US to study colocation. Maestro Shah is said to have met them in the US and discussed the issue with them. Consequently, NSE was allowed to start providing colocation facility without formal application, nor was any regulation on the same put in place. The facility was named as Direct Market Access (DMA) and was given to a handful of FIIs who were rumoured to be close to the then Finance Minister, P. Chidambaram. Having designed NIFTY50, and knowing the algorithm inside out, Shah and his coterie inside NSE benefited by giving preferential access to a few entities at the expense of others, according to insiders.

Despite the SEBI (in its November 2011 status paper on secondary market) admitting that no specific guidelines were prescribed on algo trading and colocation, the same was introduced by NSE. The entire thing was kept so low-key by NSE that there are no public records about NSE starting HFT, other than in its 2009-10 annual report statement which read, “In line with exchanges across the globe, NSE has provided its members a colocation facility for their DMA and ALGO Trading. The colocation setup is a state of the art, highly robust, resilient and secure infrastructure.”


Ajay Shah is said to have a member of the power coterie close to then Finance Minister P. Chidambaram, and Joint Secretary for Capital Markets, K.P. Krishnan. The Finance Ministry provided projects worth minimum a crore of rupees to Ajay Shah’s group in NIPFP. From the NSE Data Centre side, Omnesys was given preferential treatment by the then Joint Managing Director of NSE, Chitra Ramakrishna.

A complaint alleges that the base technology at the broker’s end is OPG Securities and the management of data centre was being done by Omnesys Technologies, in which NSE is holding 26% stake, while Chitra Ramakrishna was sitting on the board of Omnesys Technologies despite the parent of Omnesys being a broker of NSE. This is awaiting further investigation. It is now understood that OPG Securities alone had traded worth over Rs 6,000 crore on NSE using colocation facility. In addition, it is believed that the “order book” of the exchange was exported to FIIs and FPIs, helping them make illegal gains in the stock market. Incidentally, Suprabhat Lala, who was administration head at NSE, was married to Sunitha Thomas, who is sister of Susan Thomas. Sunitha Thomas and Ravi Varanasi, who was head of trading at NSE, had promoted the company that designed the algo for OPG Securities. Ajay Shah is accused of accessing tick-by-tick data from MCX for commodities, from MCX-SX for currency, from NSE & CCIL (Clearing Corporation of India) for Indian bond markets and yield curve, and currency market data from the Reserve Bank of India (RBI). In the current times, data is as precious as gold and oil.

Despite such charges against Ajay Shah by the CBI in the over Rs 50,000 crore colocation scandal, he continues to hold post of professor with NIPFP, which is an autonomous research institution in the Ministry of Finance. He also serves as economic advisor on the boards of various institutions and government bodies. He is also believed to be close to a lobbying agency in the western world that exports critical data about Indian financial markets. A thorough probe (which is yet to take place, owing to hidden backers of Shah and his coterie) may reveal that this scandal is no smaller than that of the Cambridge Analytica scam, in which the international data mining company exported confidential data.

Will a comprehensive probe take place, or will well-placed individuals scuttle such an investigation in their efforts at trying to show that Shah and his associates have committed no offence? Thus far, he has been dealt with kid gloves. Whether these will come off or not depends on the acting Finance Minister, Piyush Goyal. Faith in the stock exchange will take a hit unless the truth, the whole truth and nothing but the truth comes out about the NSE colocation scandal


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