Chitra Ramakrishna, former Managing Director (MD) and Chief Executive of National Stock Exchange (NSE) has been arrested by the Central Bureau of Investigation (CBI) over a case that was registered in May 2018 related to irregularities and alleged abuse of co-location.
The arrest was made a day after Ramakrishna’s anticipatory bail plea was dismissed by a Delhi court. The court had granted seven days’ custody of the former NSE chief to CBI, who was arrested in the co-location scam case. The court also pulled up the premier investigation agency for not taking action and being ‘lackadaisical’ throughout the probe against Ramakrishna for the last four years and in the observation.
Special Judge Sanjeev Aggarwal stated that the Securities and Exchange Board of India (SEBI) has been ‘too kind to the former chief of NSE because she is facing serious allegations and the sustained custodial interrogation will require digging out the truth.
What is ‘Co-Location’?
In ‘Co-location’ a broker’s computer is set up under the range of the Stock Exchange. Such conditioning helps in speedy advantage to the broker over others as the system placed in the range of NSE server can get market feed’s access before other brokers. This helps them in making big financial gains while stock trading.
Earlier, she was being questioned by the agency in the same case. Besides that, Anand Subramanian who was the former NSE Group Operating Officer was arrested by CBI in the matter. Reportedly, more arrests will be made in the upcoming days.
As per reports, Ramakrishna was taking advice from an unspecified ‘Himalayan Yogi’ (through conversations on email) for her decisions, which led to the allegations of her being indulged in sharing ‘confidential information with an outsider.
Ramakrishna was the first woman CEO of NSE. She served NSE for 23 years and was also named Forbes Women Leader of the year in 2013 for her work as CEO of NSE. Although, she resigned in December 2016.
Unfolding of the alleged ‘scam’:
The roots of the case lie in 2014-15 when a whistleblower had lodged a complaint with the market regulator SEBI stating that a few top officials of NSE indulged in abusing co-locating facility providing unfair access to some brokers between 2012 to 2014.
SEBI received three letters from the whistleblower, following which it constituted an expert committee that functioned under the guidance of the Technical Advisory Committee in order to investigate the glitch.
The expert committee concluded that the NSE’s architecture about the dissemination of tick-by-tick data using Transmission Control Protocol/Internet Protocol (TCP/IP) could be manipulated and was prone to market abuse as well. It also mentioned that favored access was to stockbrokers.
Initially, NSE has slapped defamation suite of 100 crores rupees against Moneylife Magazine and its founders Debashis Basu and Sucheta Dalal who published the letter of the whistleblower. The case heavily backfired on NSE who had to pay the penalty of 50 lakh rupee as ordered by Bombay High Court in 2017.
Meanwhile, in 2016 SEBI ordered NSE for a forensic audit of its systems and also to deposit the whole revenue generated from ‘co-location facilities to an escrow account. In further steps, Deloitte was tasked to conduct an audit of the systems.
Later on, in June 2017, SEBI recruited its forensic auditor for the investigation as it was unsatisfied with the Deloitte Touche Tohmatsu report. SEBI in June 2018 stated that enforcement actions were initiated against entities who were involved in the case.
NSE was ordered to pay 625 crores rupees with an interest rate of 12 percent and barred from raising money from the stock market for six months by SEBI and the market regulator also ordered OPG Securities and its top officials to excrete the unfair financial gains of over 15.7 rupees with an interest rate of 12 percent starting from April 7, 2014. SEBI also asked Ravi Narain and Chitra Ramakrishna to give 25 percent of their salary during a specified period.
Later in July 2019, SEBI served a show-cause notice to entities involved in the case (scam), Narain and Ramakrishna, NSE, and other top officials (including former and those serving)
SEBI again fined Ramakrishna and Narain in February 2022 over corporate governance lapses during the appointment of Anand Subramanian, NSE’s group operating officer who was arrested by CBI. According to speculations, Subramanian is also said to be the ‘Yogi’ advising Ramakrishna. Though, she has denied knowing him.
The investigation agency’s team has visited SEBI’s office in Mumbai to collect documents related to the case under which it had already booked Sanjay Gupta and others. Gupta is the owner and promoter of OPG Securities.
Reportedly, the Income-tax department also conducted search operations at the premises of Ramakrishna and Subramanian in Mumbai and Chennai, while CBI had issued a lookout circular against both and Narain. CBI arrested Subramanian from Chennai in the wake of new emerging facts in the alleged scam.