Algo Scam: NSE Gave 'Special Treatment' to Ajay Shah While Providing Confidential and Sensitive Data, Reveals Lok Sabha Reply Based on SEBI Inputs

Moneylife Digital Team 29 August 2018

Ajay Shah of the National Institute of Public Finance and Policy (NIPFP) was given 'special treatment' by the National Stock Exchange (NSE) in gaining access to confidential and sensitive data without a formal agreement and data use contract, reveals a reply in the Lok Sabha which is based on inputs from the market regulator.

Pon Radhakrishnan, the minister of state for finance said this in response to a question by Dr Kirit Somaiya. He said, "Securities & Exchange Board of India (SEBI) examination, inter alia, observed that the professor had employed a device/ scheme/ artifice, wherein the confidential and sensitive data provided by NSE was misused in fraudulent manner, which resulted in compromising the integrity of the securities market."

After completing its investigation, the market regulator had initiated enforcement proceedings against various entities and persons including Mr Shah, the reply says. Ironically, the finance ministry has been working closely with Prof Shah and the NIPFP.

He has also been involved with several key committees to frame market regulation including Financial Legislative Reforms Commission (FSLRC). He was also member of the internal working group of ministry of finance on internal debt management, task force on implementation of Goods and Service Tax of the 13th Finance Commission. Between 2001 and 2005, he was consultant in the department of economic affairs in the finance ministry.

Mr Shah was also member or SEBI' risk management group, secondary markets advisory committee and LC Gupta committee on policy for derivatives. During the past decade, he was extensively involved in the policy process in the reforms of the equity market and the New Pension System (NPS).

The minister, however, refused to divulge information on action taken by income tax department against all persons involved in the scam.

Mr Shah and his wife Susan Thomas were the only academics with deep access into the NSE. They received trading data from the NSE, first, in their personal capacity and, later, as academics associated with Indira Gandhi Institute of Development Research (IGIDR).

IGIDR also obtained substantial funding from the NSE. Mr Shah’s testimony reveals that he and Ms Thomas had full discretion on the use of funds (although they did not receive direct payment).

Mr Shah further admits, in his sworn testimony, that IGIDR often sub-contracted work to Infotech Financials, recommended its services and also shared data with it.

The technical advisory committee (TAC) appointed by SEBI had also nailed wrongdoing in the NSE, which were mentioned by Ernst & Young (E&Y) in its revised report. The Committee also rapped E&Y for the forensic firm’s failure to draw conclusions from its obvious findings.

You may also want to read...

Is SEBI Burying the NSE Algo Scam; Failing To Go Deep?

SEBI's Technical Advisory Committee Nails NSE on Algo Scam

Algo Scam: Declare NSE Directors, Key Management Persons, Employees and Brokers as 'Not Fit & Proper', says petition in Madras HC

NSE Started Tick-by-Tick Service Illegally in 2010 While SEBI Looked the Other Way

NSE Algo Scam: “Why Is a Forensic Firm Like E&Y Incapable of Drawing Conclusions from Obvious Findings,” asks SEBI’s Technical Advisory Committee

NSE Algo Scam: Take Action against NSE Employees and Exchange, recommends TAC

Comments