Colo Fraud: CBI Made Substantial Progress in Investigation; NSE's Internal Audit Did Not Show Preferential Access to Brokers, Says Govt
Moneylife Digital Team 31 March 2022
The Central Bureau of Investigation (CBI), which is investigating the co-location (Colo) scam at the National Stock Exchange (NSE), has made substantial progress, finance minister (FM) Nirmala Sitharaman informed the Rajya Sabha. In a separate reply, the Union government says the internal audit of NSE did not reveal details of trading members having preferential access to the Colo facility.
In a statement laid on the table, the FM says, "During the investigation in the matter, it was noticed that certain stockbrokers got preferential access to the trading system. For lapses in this regard, NSE, NSE's former chief executive officers (CEOs) and top officials have been held responsible for breaches of the relevant provisions of Securities Contracts (Regulations) (Stock Exchanges and Clearing Corporations) Regulations, 2012 and monetary penalty and other restrictions have been imposed on them."
In 2018, CBI registered a case in NSE Colo matter under Sections 120-B, 204 Indian Penal Code (IPC) and Sections 7, 12, 13(2) read with 13(1)(d) of Prevention of Corruption Act, 1988 and section 66 of Information Technology Act, 2000. CBI has informed that substantial progress has been made in investigating the case Separately, in a written reply, Pankaj Chaudhry, minister of state for finance, told the upper house that the internal audit of NSE did not reveal details of trading members having preferential access to NSE's co-location facility; however, the Securities and Exchange Board of India (SEBI) received some complaints in 2015 alleging certain irregularities in respect of co-location facility provided by the exchange.
"During the course of investigation by SEBI, it was found that certain emails were shared by the former managing director (MD) and CEO of NSE to an unknown person. Based on the findings of the examination and investigation, enforcement action was initiated by SEBI against certain entities and, other persons and consequently, it passed requisite orders," Mr Chaudhry says.
Dr Amar Patnaik, a member of Parliament (MP), had asked questions about the internal audit of NSE. 
The Colo case dates to 2015 when Moneylife first published a letter by a whistle-blower going by the name Ken Fong in June 2015. The whistle-blower alleged that NSE officials were selectively allowing a few brokers to reap massive profits through preferential access to its colo servers in the form of early log-in or access to servers with low trading loads. 
Replying to a question asked by Shiv Sena MP Priyanka Chaturvedi on remedial measures taken by the government, the minister of state says, after a thorough examination, SEBI initiated proceedings against NSE and other entities and consequently passed requisite orders. 
"Remedial steps have been taken by SEBI with regard to strengthening governance framework at exchanges and advising NSE to take various technological changes, system audit,  comprehensive documented policy, periodical review and reporting," he says.
In February last year, SEBI's adjudication officer imposed a penalty of Rs1 crore on NSE for its failure to ensure a level playing field for trading members subscribing to its tick-by-tick (TBT) data feed. NSE's former MD and CEO Ravi Narain and Chitra Ramkrishna were penalised with a fine of Rs25 lakh each. 
Before that in April 2019, SEBI had ordered disgorgement of profits from NSE and salaries of former MDs, Ravi Narain and Chitra Ramkrishna. The regulator has also asked the Exchange to disgorge an amount of Rs624.89 crore along with interest calculated at the rate of 12% per annum to the Investor Education and Protection Fund (IEPF).
Last week, a special CBI court in New Delhi rejected the bail plea of Anand Subramanian, former group operating officer of NSE, in the Colo case. 
Mr Subramanian was arrested by CBI on 24 February 2022. CBI got his custody till 9th March, after which he was sent to judicial custody.
On 28th March, the special CBI court sent Chitra Ramkrishna, former MD & CEO of NSE, to judicial custody till 11 April 2022. She is lodged at Tihar Jail. 
Ms Ramkrishna was arrested on 7th March, a day after the special court in Delhi dismissed her petition for a pre-arrest bail plea and pulled up the CBI for inaction and being 'lackadaisical' in the probe against her over the past four years. 
CBI, in its submission, told the special court that Anand Subramanian was well-connected with Ms Ramkrishna prior to his engagement as her chief strategic adviser at NSE. His wife Sunitha Subramanian also served as the regional head of NSE at Chennai from April 2011, the agency says.
Read our coverage on NSE Algo Scam here
2 years ago
Old habit of giving self clean chit on internal investigation and brushing things under. Take a bow Ms. Dalal for your spine and how you nail it with fearlessness. Limaye had all the autonomy to clean the slate but he took path of least resistance. It requires a tall leader to stand and do the right. many people came out but were damaged severely. you need to use investigative journalism to bring out these story. may your tribe grow.
2 years ago
But when & why this investigation is limited to only the top officials of SEBI & NSE? Why not this investigation is not pinpointed to find out under whose instructions or directions the entire fraud was being done. I request the Government to make a statement either in the Parliament or through its authorised representative to make it to known to the tax payers of this country as also the investors?
2 years ago
Official reply avoids referring Himalaayan Baba. Why this governmenment is shielding fraud of previous government, particularly as all this happened when Mr Chidambaram and Cngress were in power?
2 years ago
Auditwale ko kitna paisa mila ? Sabko andar karo . As regards the Mata Hari,.....
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