Last Thursday, the Central Bureau of Investigation (CBI) filed a charge sheet against Chitra Ramkrishna, former chief executive officer (CEO) of the National Stock Exchange (NSE) and Anand Subramanian, former group operating officer (GOO), in connection with the co-location (Colo) fraud case at NSE.
The charge-sheet named the two for allegedly providing preferential and unfair access to NSE’s trading system to some brokers. The charge-sheet has also alleged that key information, such as NSE’s organisational structure, dividend scenario, financial results, human resources policy, response to the regulator and future projects, was sent to external an email ID, [email protected]
, between 2013 and 2016.
In 2013, Ms Ramkrishna became the CEO of NSE and immediately inducted Mr Subramanian as her number two. It may be recalled that a SEBI order in February 2022 documented how, in her view, the world’s largest derivatives exchange was being run with the blessings of a Himalayan yogi who was communicating with her through the above email id!
To those familiar with the case, it may seem that CBI is trying to duplicate the work already done by SEBI when it investigated the Colo fraud, had issued show-cause notices (SCNs) and then final orders over four years, in drips and starts. But SEBI let off the main actors in the scam with minor raps. The show-cause notices primarily blamed Ravi Narain, who was MD & CEO till March 2013, Ms Ramkrishna, who held the post from April 2013 to December 2016, and Mr Subramanian. SEBI said it was their laxity and dereliction of duty that led to the brokerage firm, OPG Securities, getting preferential access to select servers, day after day.
It also issued a supplementary SCN on NSE’s ‘inconsistent responses’ as well as poor procedures, policies and documentation. And, yet, SEBI was unable to fix the accountability of specific persons or quantify all the illegal gains by brokers who obtained preferential access.
Though it is armed with enormous policing powers, SEBI relied almost entirely on the forensic audits that it asked NSE itself to conduct. Naturally, the SCNs have no hard evidence about who was responsible for things going wrong at NSE’s Colo.
SEBI interrogated NSE officials, brokers and others and then recorded a series of bland and evasive answers by NSE’s top brass, including Mr Narain and Ms Ramkrishna, who exercised tight control over the Exchange. Their answers to SEBI questions typically were: ‘can’t remember’ or that ‘department heads would know it’ or that ‘they would have ensured compliance’.
Ms Ramkrishna projected herself as an expert in technology but, at the interrogation, deflected all responsibility to the technology heads. Questions about fraudulent preferential access were brushed off as ‘operational’ or ‘technical’ issues about which she did not know.
This buck-passing appears outrageous, given that Ms Ramkrishna made Rs44 crore in a little over three years as MD and CEO of NSE. She earned around Rs18 crore in her last eight months in office before resigning in December 2016. Her salary more than doubled in 2016 from her previous year’s package of around Rs9 crore, even as the scam investigation was going on.
When Ms Ramkrishna quit NSE, her total remuneration was around Rs23 crore, including variable pay and perks. However, according to her, she was not accountable at all, for the rot at the NSE. Mr Narain took the same stance.
In other words, NSE top brass had enormous upside and no downside. If you are big and influential, the price of getting caught in the securities market is insignificant and can be easily challenged in courts.
Will CBI be able to do what SEBI avoided doing? While SEBI has draconian powers of search, arrest and freezing of assets, it did not use these powers. It also did not frame charges of fraud. SEBI has repeatedly asked senior NSE officials to comment on whether their Colo policies take into account the principles of fair and equal access. Since it did not focus on pinning responsibility, the answers that it got were sheer obfuscation.
These vague responses then formed the basis of SEBI’s weak orders, which have been promptly challenged by aggressive lawyers for NSE and its former top brass.
If CBI wants to get at the truth, it has to cast its net wide, without fear or favour. It has to have long chats with current and former NSE and SEBI top brass and NSE board members of the past few years, all of whom contributed to the Colo scam and or / the investigation getting smothered by a web of legal and technical issues.
According to a legal expert, by her admission, Ms Ramkrishna was acting on the instructions of unknown persons outside the Exchange. This amounts to fraud under SEBI’s provisions but the regulator’s order does not charge her with fraud and, therefore, gives her a big leeway. The fact is unfair trade practices and rampant misgovernance at NSE amount to taking the entire nation for a ride as also all listed companies, investors and intermediaries.
It is the biggest issue we have ever faced in the securities market, where a sensitive and systemically important institution and first-line regulator was not only exploited by fraudsters but functioned like a private fief. The only way it can be set right is by pinning responsibility on all the main actors of this scam and all the Yes-men who supported them.
Will CBI do what SEBI did not?
(This article first appeared in Business Standard newspaper)