A house of cards: on NSE probe

Systemic risks stemming from misdeeds at the NSE have evinced lacklustre response

March 08, 2022 12:40 am | Updated 11:48 am IST

The Sunday evening arrest of Chitra Ramkrishna, the former MD and CEO of India’s largest stock exchange, by the Central Bureau of Investigation (CBI), should change the course of what has been a laid-back probe into alleged misuse of exchange data by market players and jarring — even surreal — governance lapses. A Delhi court has granted CBI sleuths seven days to interrogate the former National Stock Exchange (NSE) boss, about a month after the stock market watchdog, SEBI, passed a 190-page order that has made headlines for its assertions about Ms. Ramkrishna sharing confidential internal information with an unknown person. Separately, the CBI has got extended custody of Anand Subramanian, the NSE’s former group operating officer, hired ostensibly at the behest of the unknown yogi, disregarding the kind of internal controls and governance norms one expects from an institution of such systemic importance in the financial markets. The catchy details must not detract from the larger questions arising from the deployment of co-location services and the lacunae in India’s oversight mechanisms over its capital markets reflected in the multi-layered failure to crack down on the wrongdoings at the NSE.

The co-location services offered by the NSE, which give market operators willing to pay a premium a headstart on exchange trading data and refine their own algorithms for high-frequency trades, are permitted by SEBI but were ostensibly misused by certain players. The NSE’s case entails an unfair advantage provided to some brokers within its co-location user community. Whatever the defenders of such services may say, the premise of giving players with deeper pockets quicker and more information than the average retail investor does not gel with an open market philosophy. That institutional mechanisms, from the NSE’s board and auditors, to SEBI, an independent regulator accountable to Parliament, have not delivered, is a larger worry. Nearly three years have passed between SEBI’s ₹624 crore fine on the NSE for misuse of its co-location services, and the latest order against its former top brass. A matter where the sanctity of the entire market comes under a cloud should have been treated with a tad more urgency. The CBI special court has observed that SEBI, which began this probe in 2016, has been ‘too kind and gentle’, while the CBI, after filing an FIR in 2018, has been ‘most lackadaisical’. With a new SEBI chief in place, the Government, led by the Finance Minister who is reviewing the handling of the NSE case, must ensure some deterrent action is accompanied by a review of checks and balances in current governance structures.

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