The Central Bureau of Investigation on Saturday expanded the scope of its investigation to include the brokers and traders suspected of having gained undue profits from the alleged misdemeanours of former National Stock Exchange (NSE) chief Chitra Ramkrishna.
The central government agency had earlier this year arrested Ramkrishna, who was the Chief Executive Officer and Managing Director of the NSE, as well as Anand Subramanian, the NSE's former Chief Operating Officer, and a chargesheet was filed against both of them last month. In its chargesheet, the CBI had stated that certain brokers and traders were given illegal access to the NSE's server through a co-location facility, which allowed them to log into the server before everyone else.
On Saturday, the CBI conducted searches at ten locations across the country.
“Searches are being conducted at premises of brokers in ten locations in Mumbai, Delhi, Gurugram, Kolkata and Gandhinagar. These brokers are suspected of misusing the NSE's co-location facility to gain an unfair advantage over the broader market. Through the faster access granted to them, they were able to check the NSE's data feed before anyone else and make huge profits,” a CBI officer said.
The officer said that the primary purpose of the searches was to recover any evidence pointing towards monetary gains made by the brokers and traders by misusing the co-location facility. The CBI is looking for electronic as well as physical evidence in this connection.
The CBI's probe has so far established that from 2010 to 2015, when Ramkrishna was managing the affairs of the NSE, OPG Securities had connected to the secondary POP server on 670 trading days in the "Futures and Options" segment. OPG Securities and its owner and promoter Sanjay Gupta have also been named as accused in the case. The agency is also probing the alleged role of unidentified officials of the Securities and Exchange Board of India (SEBI), NSE, Mumbai and other unidentified people.
The CBI had filed an FIR in the matter in 2018, but took action only after the Securities and Exchanges Board of India (SEBI) submitted a report of its probe into the matter earlier this year. The SEBI had also levied a fine of Rs three crore on Ramkrishna in connection with Subramanian's appointment. Interestingly, the SEBI's report also referred to a 'Himalayan yogi' who reportedly 'guided' several decisions taken by Ramkrishna during her tenure.
The probe into the matter began with a letter sent to the authorities by a whistleblower in 2015. According to this letter, NSE staff allowed preferential access to a handful of traders, and this crucial data was then allegedly shared with a few traders in offshore locations such as Singapore.
Curiously, NSE's forensic audits focused largely on brokers' preferential access to exchange servers, but not on data sharing, or on foreign investors, who made money using the data.
A probe was also undertaken by the Indian School of Business (ISB), Hyderabad, which was tasked with estimating the unlawful gains made by 17 trading members, who may have had preferential access. The ISB found that OPG Securities profited by Rs 25 crore due to this unfair advantage. OPG Securities also had access to NSE's time series data for research purposes, which allegedly was used to generate algorithms to maximize profits.
The NSE has about 1,000 trading members, but only 188 availed the co-location facility. Out of these 188, only a handful had preferential access as against the whole market, every day for at least five years. It's estimated that the trading volume at NSE that time was roughly Rs 2.3 lakh crore a day. While the SEBI's Technical Advisory Committee report pegged the scam at Rs 50,000 crore, Member of Parliament (MP) Arvind Sawant from Mumbai, in his question raised in the Lok Sabha last year, referred to it as a “Rs 75,000 crore scam.”
