Inventory market mafia and NSE scandal – The Sunday Guardian Reside

Stock market mafia and NSE scandal - The Sunday Guardian Live

Excerpts from The Market Mafia by Palak Shah, made completely accessible to The Sunday Guardian.

The Market Mafia by long-time inventory market watcher Palak Shah is an account of the inside workings in India’s inventory alternate ecosystem. Insider manipulation, masterminded by a senior minister within the earlier authorities, resulted in distortions that had been apparent and provable however remained uncorrected. The Securities and Trade Board of India (SEBI), whose function is to symbolize the shareholders, typically didn’t act because the watchdog, with little consequence to these accountable.
This isn’t your run-of-the-mill thriller. It’s writer Palak Shah’s “true account” of the “Algo Buying and selling Scandal”, “information theft” on the Nationwide Inventory Trade (NSE) and the Multi Commodities Trade (MCX), a story of how questionable exercise was institutionalised within the Indian monetary markets. A cabal of excessive flying bureaucrats, inventory alternate executives, SEBI officers and inventory brokers (to not point out their excessive political patronage) performed with the feelings of gullible retail traders, the e-book reveals. The names talked about within the story will not be a bunch of market operators however tie-suit executives and PhD students, who by the excessive affect of their place and entry to energy performed with the feelings of gullible retail traders.
The story of “Huge Bull” Harshad Mehta belonged to an period lengthy gone. That is the tech age, the “new age” inventory market manipulation. These are unique excerpts from Palak Shah’s e-book.

‘As the person on the helm of affairs of the premier monetary market regulatory company, he was anticipated to be extra vigilant. Quite the opposite, Chandrashekhar Bhasker Bhave was conveniently turning a blind eye to the subterranean modifications that the Indian inventory markets had been present process round 2008. Excessive-Frequency Buying and selling (HFT) pushed Algorithms (Algos)—the computer-assisted tech instruments that deftly purchase and promote shares—had been altering the high-octane fairness buying and selling recreation.”
“Securities and alternate Board of India (SEBI), the ‘super-cop’ accountable for policing it, was at a nadir in following its Dharma of making certain ‘truthful market entry’ to all members when HFT-guided Algos got here into play. Bhave, the then SEBI chairman, was apparently busy preventing his personal battles.”
“As a sacred rule, no dealer can have preferential entry to a inventory alternate platform. And the ethics demand that no instrument, order sort or service may be obtained completely by just a few from the alternate by no matter means, whilst the remainder stay forbidden from it. However expertise modified every little thing; it turned the inventory markets into an ‘Animal Farm’. The elite few with their tech instruments grew to become ‘extra equal’ than the remainder.”
“Only some brokers who used NSE’s COLO grid knew the nuts and bolts of the expertise that was driving the markets, whereas the surface world remained in pitch-darkness on the insides of the space-age like tech platform. However that invoked no battle from Bhave’s perspective. He allowed probably the most disruptive modifications together with HFT pushed Algos and COLO operations to seep into the inventory market buying and selling microstructure by NSE with no deeper scrutiny. He was a recluse when somebody advised him that NSE was sharing TBT information completely.”
“Ajay Shah and Susan Thomas, the 2 Mumbai-based professors who had been celebrities within the realm of capital market analysis, had spun a flourishing household enterprise on the NSE.”
“Bhave’s second stint at SEBI, this time as its head, grew to become potential because the then Finance Minister (FM) Palaniappan Chidambaram rallied his weight behind him. The Mundu clad politician, who was additionally a lawyer and a graduate from Harvard Enterprise College, was truly a darling of the Indian inventory markets and International Institutional Buyers (FIIs). His cheeky, off the cuff statements typically moved Sensex and Nifty, a lot in order that the 2 benchmark share indices of BSE and NSE had come to be referred to as the barometer of Chidambaram’s bulletins.”
“Earlier than Bhave’s ouster as SEBI chief, the high-tech buying and selling recreation was all set at NSE with all superior tech instruments totally in operation. Gopal’s letter was a stark image of why SEBI below Bhave allowed NSE to do what it wished to. As NSE, the most important promoter of NSDL, had let Bhave do what he wished to on the depository. NSE had raised no finger at Bhave even when the SEBI probe below Damodaran highlighted the then NSDL chief’s laxity within the faux demat accounts rip-off.”
“Information reveals that below Chidambaram’s watch, P-Observe investments in India rose sharply. Their holding by FIIs in shares and derivatives mixed jumped to a colossal Rs. 3,53,484 crores (51.6 per cent of FII property below custody) by August 2007. In March 2004, when Chidambaram had simply develop into the FM, the identical P-Observe holding of FIIs stood at Rs. 31,875 crores (20 per cent of property below custody).”
“However all of the emotional calls to ban P-Notes immediately fell on the deaf ears of Chidambaram. Like a damsel with billions of {dollars}, P-Notes had romanticised the FM, and he appeared to be loving it.”
“An off-the-cuff clique of present and serving bureaucrats, SEBI officers, attorneys and company pursuits orchestrated this subversion of the due means of legislation. They illegally interfered with impartial SEBI adjudication, manipulated authorized opinions, suppressed and misrepresented details and misled the SEBI Board and Authorities officers concerning the legality of the Orders. Legislation, rules and established precedent had been violated.
“So who was so highly effective to pressurise the top of India’s Nationwide Judicial Academy? Those that may difficulty threats to an individual with the stature of Gopal had been ‘The Market Mafia’. The facility they derived from their place was the tough, repressive power that wielded like a ‘Rampuri’ (Indian gravity knife) to chop individuals who got here of their means. Threats to Gopal had been splashed in main newspapers however these at whom fingers had been being pointed at, remained silent—an act extra lethal than their violence.”

“Ajay and Susan had been captivated by Algo buying and selling. As PhD students from the College of Southern California (USC), they behaved extra like modern-day Utopians, idealistic reformers in shaping the coverage narrative for NSE. Each had been hardened advocates of derivatives buying and selling and wrote papers, blogs and newspaper columns churning out pompous theories to showcase its traits. NSE zealously guarded its larger quantity churn within the F&O from rivals just like the BSE.”
“Curiously, the USC shows a dissertation paper submitted by Susan as lately as June 20, 2017, which based on the college was in ‘partial fulfilment of requirement for diploma of Physician of Philosophy’. Like USC shows a PhD certificates for dissertation paper submitted by Ajay, no such proof is offered for Susan even for her paper submitted in 2017 that might show her credentials as a PhD scholar past doubt. Within the absence of such essential piece of proof, it may be pretty concluded that there are not any information to show that Susan, one in all India’s main researchers on inventory markets and financial system for the reason that Nineties and a senior professor at Indira Gandhi Institute of Developmental Analysis (IGIDR), had a PhD diploma for over ‘twenty years’ as claimed by her.”
“The whole prime brass of NSE was junior to Dave at IDBI Financial institution, the establishment which was the important thing founder and the most important promoter of the alternate. Suresh Shankar Nadkarni who grew to become chairman of SEBI after 1992 additionally got here from IDBI Financial institution. Damodaran, who headed SEBI between 2005 and 2008 was a former IDBI Financial institution chairman after he stop IAS. Even Bhave, who had labored as an govt director at SEBI within the early Nineties was obliged to Dave, however Dave was in flip obliged by information disseminating firm CMIE, promoted by Ajay and his household. No marvel Dave was provided CMIE’s chairmanship quickly after his retirement from SEBI.”
“With the facade of CMIE, IGIDR and the backing of Dave, Lakdawala gave Ajay and Susan a bonus to masks the truth that Susan, who has additionally been a information to a SEBI official in doctorate research, didn’t herself maintain a PhD diploma. Blessings of Dr. Patil, NSE’s founder boss and a father determine to the workers on the alternate however a lot junior to Dave in IDBI, additionally helped Ajay achieve a foothold on the alternate. Dave remained the chairman of CMIE and Ajay, who was by no means formally employed by NSE in any capability, besides board seats on group corporations, operated like an ideal insider within the alternate.”
“In only a 12 months after Bhave took cost at SEBI amidst the raging controversy over P-Notes and his personal NSDL fiasco, India had its tryst with the ‘Flash Boys’ in 2009. It was earlier than the world woke as much as the velocity hyperlink fibre optic cable that was established between Chicago and New York. The flipside of HFT and Algos was witnessed by the world, first through the US flash crash of Might 2010. However an analogous Flash Commerce incident in India, a 12 months earlier than the US HFT-driven crash, handed with out a lot ado. Not like the US, what India witnessed was a pointy vertical leap of essential market indices that negated the panic.”
“SEBI’s investigation that adopted a whistleblower letter in 2015 about Algo buying and selling rip-off at NSE revealed how Ajay obtained essential information from the alternate for years with none formality. What and the way a lot information did NSE share with Ajay and Susan? That is merely not traceable. SEBI too is clueless. Later, it got here to mild that the couple with their household enterprise had devised a profitable enterprise mannequin of Algo buying and selling software program and even bought it to shoppers.”

“These handful folks, occupying the higher echelons of NSE, had been letting down the very establishment the place they had been employed for a very long time. This cabal with no regard for guidelines or concern of legislation had been embodied in abuse of energy with impunity.”
“It was solely when Enron dragged India to the Worldwide Court docket of Justice (ICJ), Chidambaram relinquished his place as its authorized adviser on the time when he was made the FM by Sonia Gandhi. Mockingly, the Congress-led authorities by which Chidambaram just about held the quantity 2 rating, engaged a Pakistani-origin lawyer named Khawar Qureshi to current the Indian facet at ICJ. Pakistan has the standing as India’s enemy and the dimwit lawyer misplaced the ICJ case in months. Harish Salve was preventing the case for India at ICJ earlier than UPA got here to energy. No one is aware of why the erudite authorized knowledgeable was changed by an enemy nation’s inefficient lawyer.”
“Curiously, the lawyer who argued for Chidambaram within the case was one other distinguished lawyer-cum-politician and BJP chief, Arun Jaitley. Each Chidambaram and Jaitley took turns at changing into India’s successive FMs, albeit from completely different political events and governments. However the grapevine goes that they had been brothers in arms and infrequently got here to the rescue of one another. However that could be a completely different story.”
“Nalini was, in fact, one, however controversy appeared Chidambaram’s one other spouse.”
“SEBI’s inefficiency was at its peak when the regulatory officers got here throughout a ‘faux’ settlement between NSE, Ajay and Susan however it didn’t check with the case for a radical legal probe.”
“‘Information was shared with Ajay on the request of MD and DMD,’ Ravi Apte, NSE’s chief of expertise between 2007 and 2013, mentioned throughout his interrogation by SEBI. His fingers pointed in direction of his two bosses, Ravi Narain and Chitra Ramkrishna. Oral orders got here from the highest, different NSE officers too divulged throughout audit investigations.”
“With unimpeded entry, Ajay and Susan had been being discreetly fed very important commerce information from NSE all by 2009, simply weeks forward of the mysterious big leap of Sensex and Nifty on Might 18 that 12 months, which shut down buying and selling on the BSE and NSE. There was a lot data within the information NSE shared with Ajay that he handed it to IFPL for enhancing and back-testing Chanakya’s Algo codes.”
“The blatant information breach at NSE, involving the alternate prime brass, was unparalleled within the historical past of inventory market scams when it comes to sheer planning and scale. Ajay and Susan argued for a framework on Algo buying and selling and even obtained the info on a platter which was clearly misused by them for his or her industrial positive factors by growing Algo buying and selling merchandise on the market within the securities market.”
“What was the desperation for the nation’s FM to micro-manage NSE? SEBI went on to say NSE’s behaviour was a systemic danger. Later, a former NSE board member advised a journalist that the issue was that non-written communication travelled a lot quicker on the alternate and left no audit path.”

“If Ravi Narain and Chitra Ramkrishna had a fame of salaried executives enjoying by the rule e-book, Shah, in distinction, got here throughout as a ‘business-man’ with the everlasting air of outsider intent on crashing into the celebration. After his two profitable ventures, the FTIL and MCX, Shah declared that he could be a billionaire earlier than he turned 40, a purpose he missed narrowly.”
“NSE’s lawyer, who has managed to delay the case up to now is one other Congress celebration veteran, Abhishek Manu Singhvi. As soon as he even sought a date from the apex courtroom saying that he was busy typically elections.”
“With an assault on FTIL, the NSE had not solely under-cut Shah’s income base and the muse of his enterprise, but in addition stole ODIN’s first-mover benefit in COLO buying and selling that went to Omnesys. Since NSE was the monopoly alternate, FTIL had nowhere else to go and as soon as volumes elevated through DMA and COLO grid, no different alternate would be capable to steal a march over NSE ever. The dominance of those that managed NSE would additionally stay intact.”

“Rajeev Agarwal’s ouster from SEBI was a peculiar case that reveals the ability play of the ‘bureaucratic brotherhood’ in India and the cabal that was accustomed to arm-twisting the executive system.”
“For the alternate trade, the Jalan guidelines mimicked the interval known as licence-Raj in India when each trade was regulated and there was an elaborate system of permits and licences, rules accompanying purple tape that had been required to arrange and run companies within the nation.”
“Two of India’s largest exchanges suffered an unprecedented information breach. No one, together with super-cop SEBI, wished to conduct a radical probe. It speaks volumes of how corrupt the system has been lowered to.”
“The first findings of the IIT Bombay and CFT crew had been sensational. It mentioned, The velocity of some machines in NSE’s COLO farm that disseminated TBT information was larger than others.”
“Lacking emails, misplaced trails, contradictory statements and ominous silence of alternate staff mark the forensic audit that highlighted clear potentialities of NSE’s complete disregard for guidelines and operating a nationwide alternate with out well-laid-down protocols solely to favour and provides preferential remedy to a couple brokers.”

“Oblivious to the high-tech grid, home retail traders and mutual funds had been busy of their plain vanilla recreation. Little did they know that the information of the purchase or promote orders that they had been punching, reached the operators in NSE’s COLO farm. This information of the order e-book, which is TBT information, was totally exploited by the HFT Algos that had been in management and it was all a hand-in-glove operation.”
“SEBI believed what it wished to, however the design of the COLO farm revealed its personal story. Each step appeared meticulously deliberate by those that had the nerve and the information of the inventory alternate operations.”
“The data of the server with the bottom load was handed on by the alternate workers to brokers, who linked to the quickest machines fairly often.”
“A choose few with patronage within the NSE COLO farm had been having fun with the celebration through a secondary server—front-running the markets by milliseconds.”

“There was an enormous under-reporting by SEBI of the illegitimate positive factors made by OPG Securities.”
“OPG churned ‘prop commerce’ volumes value a whopping Rs. 26.64 lakh crores (roughly USD 484 billion based mostly on a conversion worth of Rs. 55 towards the USD) within the fairness derivatives section between 2010 and 2015.”
“OPG had contracted one other New Delhi agency ‘Algotech’, for offering it with buying and selling software program. Deloitte got here throughout an settlement between Sunita’s (Ajay’s) firm Chanakya Commerce Vistas (CTV) and Algotech for a software program deal.”
“For causes finest recognized to senior SEBI officers alone, they’ve utterly omitted the hyperlink between Ajay, IFPL, Algotech, OPG and Common Broking, in the middle of their investigation and last order.”
“A number of the different buying and selling corporations within the Deloitte checklist that had been buried by SEBI too have Singapore hyperlinks.”
“In a single 12 months in 2010, Goldman Sachs (India) Securities Non-public Restricted logged into secondary servers 69 instances in NSE’s COLO. However SEBI had restricted the scope of investigation of its TAC committee to a interval between 2012 and 2015.”

“Entities registered on the F-9C suite have billions of USD flowing to it from the mystic blue-sea islands of Mauritius and Cayman, the yard of the world’s filthy wealthy. The money flowing from these ‘tax havens’ is all ‘white cash’ able to be moved wherever on this planet. One other comparable handle that pulls a lot ‘Manna from Heavens’ is Rocklines Home, floor Ground, 9/2, Museum Street, Bengaluru, Karnataka.”
“If Susan is a chosen accomplice and key managerial particular person in an organization since 2010, which later contributed Rs. 200 crores to a PE fund, does the regulator not must know who truly this cash belonged to?”

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