NSE Co-location Scam: Delhi HC To Hear a PIL on Tuesday, Says Report
Moneylife Digital Team 29 April 2019
The Delhi High Court will hear a public interest litigation (PIL) on Tuesday related with over Rs50,000 crore National Stock Exchange (NSE) co-location scam, says a report.
 
According to the report from Hindu Business Line, the PIL came from a complaint filed by Central Bureau of Investigation (CBI) in August 2017 which sought apex court’s directions to the agency for increasing the ambit and scope of its investigations in the NSE co-location scam. 
 
"On Tuesday, noted lawyer Mahesh Jethmalani will appear for the petitioner Shantanu Guha Ray, it is learnt," the report says. 
 
Earlier, the PIL was mentioned before the bench of Justice Siddharth Mridul and Justice Manoj Kumar Ohri, where the senior counsel had requested adjournment to implead all parties and necessary parties in the case (http://delhihighcourt.nic.in/dhcqrydisp_o.asp?pn=98117&yr=2019). 
 
The newspaper report says, "The petitioner has in the PIL contended that NSE had abused its market position and helped deviant brokers and politicians make unlawful and illegal gains, thereby rendering the institutional set up of exchanges itself at risk. It has also been alleged that Securities and Exchange Board of India (SEBI) has not taken any action against such brokers from NSE, it’s concerned officers and other culpable persons."
 
"The NSE co-location scam is all about market manipulation at the NSE. It had been alleged that select players obtained market price information, ahead of the rest of the market, enabling deviant brokers to make wrongful gains running into hundreds of crores. With the alleged connivance of insiders, NSE’s algo trading was rigged and co-location servers were used to ensure substantial profits to a set of brokers," the report says. 
 
While the algo scam has been known for over three years now, since Moneylife exposed it in June 2015, SEBI had not shown much action, except issuing a weak show-cause notice sometime in July 2017. Taking a lead over SEBI, on 30 May 2018, CBI filed a first information report (FIR) against Sanjay Gupta, owner and promoter of OPG Securities Pvt Ltd, Aman Kakrady (brother-in-law of Sanjay), Ajay Shah (who is alleged to have facilitated Mr Gupta by developing and providing Algo software Chankaya), besides some unnamed officials of the NSE and SEBI. 
 
The nine-page FIR, filed on 30th May, was based on ‘source’ information but went straight into the issues that SEBI officials have been shirking for three years. In these three years, the main investigation into this issue was directed by the highly-regarded chairman of SEBI’s technical advisory committee (TAC), headed by Prof Ashok Jhunjhunwala.
 
After receiving show-cause notices from market regulator SEBI, 12 out of 14 high-profile current and former top executives at NSE including its former vice chairman Ravi Narain and managing director and chief executive (CEO) Chitra Ramakrishna filed an application with SEBI to settle the co-location issue under consent mechanism in July 2017. 
 
NSE too had filed a consent application which was later returned in March 2018 in the wake of CBI investigation gathering momentum, the report added.
 
In the wake of the co-location scam, in December 2016, Ms Ramakrishna resigned from NSE, while Mr Narain put in his papers on 2 June 2017.
 
Earlier in December 2018, SEBI chairman Ajay Tyagi told reporters that it had started adjudication against 28-30 members. "Two whole-time members of SEBI are working on the NSE co-location matter and it has started adjudication against 28 to 30 members of the stock exchange," he had said.
 
The co-location or algo scam came to light in mid-2015, when Moneylife wrote about it for the first time, following multiple letters from a whistleblower. For this, NSE had filed a defamation case against us. A single-judge had penalised NSE for Rs50 lakh for having filed a case. After filing an appeal against the order, NSE paid up the penalty. Meanwhile, in the wake of the scam, the top brass of NSE had to resign and a new management team took charge.
 
In May 2017, SEBI issued its first set of notices to 11 entities, even as NSE had filed for consent mechanism. In July 2018, a second set of notices was issued, after SEBI recorded statements of various NSE officials, brokers  and others involved. 
 
SEBI’s SCNs were backed by three detailed reports: SEBI’s technical advisory committee (TAC), NSE-appointed forensic auditor, Deloitte Touche Tohmatsu India LLP (Deloitte) and, finally, an independent audit by Ernst & Young, all established wrongdoing.
 
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