NSE scam | CBI examining role of SEBI officials in 2016-19

The Central Bureau of Investigation (CBI) is investigating the role of officials at the Securities and Exchange Board of India (SEBI) who served during 2016-19 when alleged governance lapses and a series of irregularities unfolded at the National Stock Exchange (NSE), said multiple people familiar with the development.

Referred to as the co-location scam, the investigation pertains to a 2018 case in which the then NSE brass are accused of providing a bunch of high frequency traders unfair access to speed up algorithmic trading.

According to the people cited above, the role of officials who served at SEBI during 2016-2019 has come under the scanner and the officials are likely to be called for questioning soon. "CBI feels that they are accomplices in the case," said one of the persons. "They never reported this matter anywhere and nowhere did it find mention in any vigilance records."

Were SEBI officials party to the case?

According to top CBI sources, the agency is examining whether SEBI officials too were party to the crime.

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"It was deliberately hidden. They should have informed their nodal ministry about these developments," said a second person. Both declined to be named citing the sensitivity of the matter.

On March 10, the Mint newspaper reported that SEBI officials are being probed by CBI as it looks into

The co-location scam was first brought into SEBI's notice when a whistleblower wrote to the regulator in January 2015 explaining the flaws in NSE's co-location system, and how some brokers had exploited those flaws in collusion with some employees of the NSE. Following two more whistleblower letters, a SEBI technical advisory committee found lapses in NSE's co-location system.

Subsequently, in September 2016, the regulator ordered the NSE board to investigate these charges and also ordered a forensic audit.

In May 2017, SEBI had issued show-cause notices to NSE and 14 officials, including former managing directors Ravi Narain and Chitra Ramkrishna, who had stepped down in December 2016 following the expose' of the co-location scam.

After an investigation which stretched on for years, SEBI in an interim order directed the exchange to disgorge Rs 624.89 crore, and barred it from accessing the market for funds for six months. It also clawed back 25 percent of the salaries drawn by Narain and Ramkrishna for a certain period along with barring them from the markets.

Separately, SEBI had also received complaints against the exchange alleging governance lapses in the appointment of Anand Subramanian as Group Operating

Officer (GOO) and Advisor to MD, NSE without following due process. SEBI's investigations revealed that Subramanian did not have prior experience nor was he designated as a key management personnel.

The regulator had issued showcause notices to the exchange, the then managing Chitra Ramkrishna and other officials in December 2019.

This February, in its final order, SEBI detailed how Ramkrishna shared information including the bourse's financial projections, business plans and board agenda with a purported spiritual guru in the Himalayas. A forensic audit report had revealed that Subramanian was this mysterious yogi — a fact that former NSE Chairman Ashok Chawla had pointed out to SEBI in a 2018 letter — but this was dismissed by the Sebi in its report on February 11.

"The sharing of financial and business plans of NSE ... is a glaring, if not unimaginable, act that could shake the very foundations of the stock exchange," SEBI said in an order, imposing penalties on Ramkrishna, the bourse and other top former executives for the lapses.

Now, investigations are on to verify the actual facts of this case particularly to find out whether NSE's financial details and business plans were shared for misuse. SEBI's own role has been called into question and the Finance Minister said in an interview to ET that the government is examining whether the regulator took adequate action in the NSE matter.

Look-out circulars were issued against Subramanian, Ramkrishna and Ravi Narain as part of the investigation. The Central Bureau of Investigation began questioning Ramkrishna in February.The CBI on February 25 arrested Subramanian in connection with alleged favours to certain traders. The development came as authorities pressed ahead with an investigation into the case.

Later, the agency arrested Ramkrishna on March 6. She is currently under judicial custody.