NSE Algo Scam: SEBI Exonerates Former Top Executives including Ravi Narain, 8 Others in Sampark Dark Fibre Case
Market regulator Securities and Exchange Board of India (SEBI) has absolved National Stock Exchange (NSE)'s former chief Ravi Narain, vice president Suprabhat Lala and eight others in the co-location (colo) scam where brokers were alleged to have received preferential access to the trading systems of the bourse. SEBI says all these key executives of NSE neither had a role as director or key management personnel (KMP) in facilitating Sampark Infotainment Pvt Ltd to lay down dark fibre line to point-to-point (P2P) connectivity nor in modifying a 2009 circular from the Exchange. 
 
The order passed by SK Mohanty, whole time member of SEBI, says, "...from the records, I do not find any evidence or any material that establishes or even remotely indicates any role played by any of the noticees as far as establishment of P2P connectivity by 'Sampark' is concerned. There is nothing on record which could even suggest that any of the entities was occupying a post of director or KMP and on account of holding of such post, the respective noticees could be fastened with the accountability for the lapses, breaches and discriminatory treatment meted out to the market participants by permitting a selected few stock brokers to avail dark fibre connectivity from 'Sampark'."
 
"In my view, based on the evidences available on record and after having considered the same, it cannot be held that the noticees herein were involved in facilitating 'Sampark' to lay down the dark fibre line to provide P2P connectivity.
 
There is also no evidence to suggest that noticees had any role in modifying the Circular of 2009 in the year 2013. Consequently, they were also not responsible for the non-transparent dissemination of the modification so made in the above mentioned circular of 2009 and therefore, the noticees cannot be held responsible for any misconduct or non-compliance as far as laying of P2P connectivity using dark fibre is concerned." 
 
Mr Monahty further says, "I observe that the allegations pertaining to the involvement of the Noticees have been made only because of their association in some capacities with National Stock Exchange India Ltd (NSEIL during the relevant period of time. It is an admitted position that none of the noticees was occupying the position of a director in NSEIL, more particularly during the relevant period, when 'Sampark' was allowed to lay down dark fibre lines to establish P2P connectivity between the two stock exchanges for a few selected stock brokers," the order says.
 
Those exonerated by SEBI includes, Ravi Narain (former MD & CEO), R Nandakumar (former senior vice president -VP for operations), Mayur Sindhwad (chief operating officer-COO for trading), Sankarson Banerjee, (chief technology officer-CTO for projects), G Shenoy (CTO for operations), Suprabhat Lala (vice president -regulations), Ravindra Apte (former CTO), N Muralidharan (former CTO) and Jagdish Joshi (former head for colo). 
 
The co-location case which dates back to 2015 sparked controversy when Moneylife published a letter by a whistleblower going by the name Ken Fong in June 2015. The 
whistleblower wrote to the SEBI with a copy to Moneylife, alleging the NSE was giving a few high-frequency brokers preferential access to its servers by allowing them to place their servers in the NSE premises that benefited both the parties at the cost of others.
 
 
 
In May 2019, SEBI had indicted well-known market economist Ajay Shah and Suprabhat Lala, a senior official of NSE in the algo trading scam.  The order said a private firm of Sunita Thomas (Mr Lala’s wife and sister-in-law of Ajay Shah), 'commercially exploited' confidential data obtained from the NSE for writing algo trading software. SEBI had also directed NSE to take legal action against Mr Shah, Ms Sunita Thomas, her firm Infotech Financial Services Pvt Ltd, and Krishna Dagli, director of the company. One of the orders indicts, Ravi Narain and Chitra Ramakrishna, both former MDs of NSE overlooking conflict of interest in awarding contract to Infotech Financial. (Read: NSE Algo Scam: SEBI Says Ajay Shah, Suprabhat Lala & Their Wives ‘Commercially Exploited’ Confidential Data)
 
Before that in April last year, 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 Protection and Education Fund (IPEF).
 
SEBI estimated that NSE earned a profit of Rs624.89 crore during 2010-11 to 2013-14 from its co-location operation. Finding Narain guilty in the case, SEBI has asked him to disgorge 25% of the salary drawn for FY11 to FY13 to the IPEF. In case of Ramkrishna, she has been asked to disgorge a quarter of her salary drawn for FY14. She has also been prohibited from associating with a listed company or a market infrastructure institution for a period of five years. (Read: NSE Co-location Scam: SEBI Orders Disgorgement of Profits from NSE and Salaries of former MDs, Ravi Narain and Chitra Ramkrishna)
 
In a second order last year, related to “dark fiber” involving unregistered service provider, Sampark Entertainment, SEBI had said that since NSE is a recognised stock exchange and the leading market infrastructure institution, it occupies a pivotal role as a front line regulator. Therefore apart from reformatory steps under section 11, 11(4) and 11B of the SEBI Act, 1992 and Section 12A of the SCR Act, 1956, “considering the gravity of the allegations that have been established…, additional exemplary directives need to be issued could pose an effective deterrence and dis-incentive to the noticee (NSE) to perpetrate such kind of violations in future so far as administration and governance of its Colo facility is concerned.”
 
SEBI has directed NSE to deposit a reasonable portion of revenue earned by NSE through its co-location facility during 8th May 2015 to 10th September 2015 to the Investor Protection and Education Fund (IEPF) of SEBI. This amounts to Rs.177.43 Crore.
 
Since NSE has allowed Sampark “to provide P2P connectivity without having proper licence, to a few stock brokers in a preferential manner while denying the same service to other stock brokers and the said illegitimate service continued for a period of four months, SEBI has asked for Rs62.58 crores to transferred to IPEF. Two co-location traders Way-2-Wealth and GKN Securities, were found to have “fraudulently availed of P2P connectivity with the help of an unauthorized Telecom Service Provider (Sampark) at the Colo facility of NSE… in a manner to gain undue advantage in terms of low latency and high bandwidth in data transmission as compared to other stock brokers in securities market.”
 
Hence, SEBI has asked them to deposit an amount equivalent to income from trading in their proprietary trading accounts during the period Sampark was permitted to provide P2P connectivity to them, to the IPEF. This comes to Rs15.34 crores for W2Wand Rs4.9 crore for GKN.
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    COMMENTS

    m.prabhu.shankar

    1 month ago

    These people were not involved. Fine. Then who is involved in allowing Sampark to lay dark fibre for P2P connection. This looks like many murder / rape case judgements where its very clear murder / rape has happened but there is no proof against the accused and hence the accused it let off.

    Sreepathid

    1 month ago

    Many employee lives turned up and down. Can the reputation of all those employees restored ?

    SEBI Defers to April 2022 the Deadline to Separate Roles of Chairman, MD
    Market regulator Securities and Exchange Board of India (SEBI) has deferred to April 2022 its directions for top 500 companies to comply with on separating roles of chairman and managing director (MD). 
     
    In a notification on 13 January 2020, SEBI says the date of implementation of the regulatory provision has been deferred to 1 April 2022. There was reason given by the market regulator for this change.
     
    In March 2018, SEBI had recommended separation of post of CEO and MD and chairperson that was supposed to be first applicable for top 500 entities from 1 April 2020.
     
    Earlier in October 2017, the Uday Kotak Committee set up by SEBI (the third such committee set up by SEBI over the last two decades) had recommended separation of powers of the chairperson or leader of the board) and CEO and MD or leader of the management, in phased manner to provide a better and more balanced governance structure.
     
  • User

    COMMENTS

    m.prabhu.shankar

    1 month ago

    Excellent. De-centralization of powers always results positively.

    Yes Bank: Uttam Agarwal Alleges Insider Trading, Seeks SEBI Probe
    Uttam Prakash Agarwal, who last week resigned as independent director of Yes Bank Ltd, has filed a complaint with Securities and Exchange Board of India (SEBI) seeking a probe into illegal gains made by a certain set of people in giving misleading information to the markets and the people on potential investors, including Citax Holdings and Erwin Singh Braich. On Friday, Yes Bank rejected mysterious investor Erwin Singh Braich's $1.2 billion investment offer but said that it will raise Rs10,000 crore by issuing securities. The Bank on Friday also said it will take up Citax Holdings, and Citax Investment Group's investment offers in the next board meeting.
     
    Though Mr Agarwal, who recently resigned as the independent director from the Yes Bank board and head of the audit committee, has not spelt it out, it implies to insider-trading, which needs to be investigated by SEBI. "...enquire or investigate the resultant illegal gains made by certain set of people on account of non-compliances, false or misleading news and fix responsibility with appropriate fines, punishment and such other measures, which will ensure that regulations are complied with, both in letter and spirit," he says in his letter. 
     
    The letter sent to SEBI chairman Ajay Tyagi and whole-time member G Mahalingam, by Mr Agarwal, former president of the Institute of Chartered Accountants of India (ICAI), reveals chain of events when Yes Bank was evaluating potential investors. 
     
    The copy of the letter is also marked to Reserve Bank of India (RBI) governor Shaktikanta Das, Injeti Srinivas, secretary of the ministry of corporate affairs (MCA), Vikram Limaye, managing director (MD) and chief executive officer (CEO) of the National Stock Exchange (NSE) and Ashish Chauhan, MD and CEO of the Bombay Stock Exchange (BSE).

    Mr Agarwal has asked SEBI to investigate whether the process followed by Yes Bank's managing director (MD) and chief executive (CEO) Ravneet Gill had been law-compliant. "The empowered committee at its meeting held on 7 January 2020 also reviewed presentations made by three independent experts, namely, IDFC Securities, Ambit Capital and Avendus Capital, all of which reaffirmed the concerns raised by the undersigned.
     
    "Despite, the management led by CEO has attempted to mislead and convened a meeting of board of directors on 10 January 2020 with false hope of any such potential capital raising transactions. Regulatory authorities should intervene and issue directions of not holding any board meetings, till genuine and legit investors (in compliance with the RBI norms), are presented to the regulatory authorities," he says in the letter dated 9 January 2020.
       
    According to the complaint, the management of Yes Bank did not share names of potential investors with the board members and, when it did, in the form of Citax and Braich, these were not binding term-sheets devoid of details and without any due diligence from legal experts or investment bank.
     
    Following pressure from the board members, Mr Agarwal alleges, Mr Gill downloaded from the Internet a copy of balance sheet of Citax with paid-up capital of only 100 pounds at which the aghast members insisted that no such misleading information on investors putting in billions of dollars should be shared with the public or the regulatory authorities.
     
    "In addition to the two term sheets, CEO and MD tabled three more single-page letters from different investors, namely Rekha Jhunjunwala (undated), Ward and Ferry and Discovery Capital. They were expressions of interest (EoIs) and not commitment," he added.
     
    Mr Agarwal says, "Stating that it will find out interest of investors in the UK based on a letter issued by Prime Securities (previously banned by SEBI) was a clear ploy by the MD and CEO to salvage commitments made to the board and given to the public." 
     
    In view of the management's failure to oversee capital raising, the "board set up an empowered committee to suggest alternative and corrective ways to deal with the situation, which was caused by the inefficiencies and failure on the part of the CEO," he says.
     
    Mr Agarwal also suggested a forensic audit to investigate dissemination of misleading information, but no such action was taken.
     
    Last week Mr Agarwal had resigned as an independent director and chairman of the audit committee of the board of Yes Bank, while making certain observations on the governance of the Bank.
     
    While confirming the resignation, Yes Bank had said, its board was scheduled to review fit and proper status of Mr Agarwal, but before that he tendered resignation.
     
    "...the Bank was reviewing the 'fit and proper' status of Mr Agarwal as directed by the Reserve Bank of India. In this respect, the Bank had obtained legal opinions from eminent jurists. These opinions were to be considered by the nomination and remuneration committee of the board (NRC) and the board of the Bank in their meetings scheduled for 10 January 2020. However, prior to the commencement of the proceedings of these meetings, the Bank received the resignation of Mr Agarwal."
     
    Interestingly, in November 2018, Hemindra Hazari, a well-known research analyst, had cautioned about appointment of Mr Agarwal as independent director of Yes Bank. In his blog post, Mr Hazari, had stated, "The immediate appointment of Mr Agarwal, a former president of the Institute of Chartered Accountants (ICAI), as an independent director and probable future head of the (Yes) bank's audit committee may not be the most appropriate choice. The concerned individual has dabbled in politics and failed to be elected from a suburb of Mumbai in a 2014 Maharashtra state election as a representative of a political party. Appointing chartered accountants-cum-politicians may not be the best way to restore confidence in the bank at such a critical stage."
     
     
    "While it is commonplace for corporate chiefs to cultivate the ruling party, it is not the normal practice for private sector banks, or private corporate sector entities in general, to nominate politicians as directors, as this adds an additional dimension of political risk. Investors should be cautious regarding Mr Agarwal, a chartered accountant-cum-politician, replacing Vasant Gujarathi on the audit committee. Indeed, Mr Agarwal may be even be appointed as the chairman of this important sub-committee of the board," Mr Hazari had written.
     
    Last week, Yes Bank, in a regulatory filing had said it received an updated proposal from Braich but the "board has decided not to proceed with the offer" after last month postponing a decision on his binding offer of $1.2 billion – 60% of the total capital the Bank aimed to raise.
     
    IANS had also reported last month that Mr Braich and his Hong-Kong-based SPGP fund was not even able to pay up Rs2 crore for earnest money in the Reid & Taylor bid under NCLT earlier this year. The SPGP has also been involved in a few lawsuits, including one against the Canadian government. 
     
    Yes Bank, however, after its five-hour long board meet on Friday, said that it is willing to "favourably consider the offer of $500 Million of CitaxHoldings and Citax Investment Group and the final decision regarding allotment to follow in the next board meeting…" as "the relevant conditions precedent could not be completed as on date."
     
    At 2.51pm Monday, Yes Bank was trading 5.6% down at Rs42.30 on the BSE, while the 30-share Sensex was marginally up at 41,812.
     
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    COMMENTS

    Ramesh Poapt

    1 month ago

    hope not other Satyam!

    SM

    1 month ago

    SM1 second ago Can Moneylife please probe and throw some light on the corruption charges and other controversies during Mr. Uttam Agarwal’s stint as the ICAI president?

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