“But you have to swear everyone to silence on the fact that the data that we are getting out of NSE for VIX (volatility index) and LIX (liquidity risk index) is being used for algorithmic trading work — it would be a severe problem if this fact comes to light since NSE has not given anyone else this data,” Ajay Shah, a consultant to the Finance Ministry during the Congress-led UPA regime, wrote in a 2009 email.

Though the addressee is not clear, the email is part of a SEBI report that indicts Shah for his role in the co-location and algo trading scam that rocked the NSE between 2010 and 2016.

Unravelling links

Unravelling a web of patronage and favourtism, the market regulator in July issued a show-cause notice to Ajay Shah, who currently works with think tank National Institute of Public Finance and Policy, for breach of a data-sharing agreement with the NSE and other issues. The CBI has also indicted him for exploiting the exchange’s systems.

According to SEBI’s findings, Shah's sister-in-law, Sunita Thomas, is a founder-director of Infotech Financial and Chanakya Tradevistas that mainly provided algo trading solutions and software to clients such as OPG Securities, which, SEBI says, was the most preferred broker getting preferential access to the NSE’s trading servers. Sunita Thomas is married to Suprabhat Lala, who was chief of regulation and head of trading division at the NSE during 2010-13.


‘Factually wrong’

Confronted by SEBI on his statement in the above mentioned email, Shah said, “The last sentence, ‘NSE has not given anyone else this data’, is factually wrong as this data goes out through numerous channels (Reuters, Bloomberg, CTC, NEAT). What was unique about us was that these files were coming out conveniently as .csv files for research. I was exaggerated in my expression in order to achieve extreme emphasis.”

On SEBI’s question if Lala had shared any confidential data with him or his wife, Susan Thomas, Shah said, “We occasionally look to Lala to obtain insights into the working of NSE and of the financial markets. But I do not recollect any data flows or confidential info.”

Shah told the regulator that his association with the NSE had begun even when the bourse was being conceptualised, though only informally. The association led to not just building Nifty but also to setting up a clearing corporation and launching derivatives trading.

However, Chitra Ramkrishna, former NSE boss, who had been with the exchange since its inception, told SEBI that she met Shah only infrequently.

SEBI found that Shah had officially entered into a data-sharing agreement with the NSE after 2012 before which he and his wife Susan Thomas got the information from the exchange informally as researchers. While Chitra Ramkrishna and other top NSE executives told SEBI that they did not share any data with Shah in his personal capacity, Shah told the regulator that he and his wife were signatories to a data-sharing agreement with the NSE and “prior to the contract also, the data flow was to Ajay Shah and Susan Thomas”.

The NSE’s long-serving Chief Technology Officer Ravi Apte told SEBI that he had facilitated transfer of data to Shah at the request of Ravi Narain, former MD, and Ramkrishna, under the impression “that an appropriate confidentiality agreement was signed with him (Shah) by NSE.”

Checks & balances

By Shah’s accounts, the checks and balances at the NSE were lax. For, Shah told SEBI that apart from CD-RoMs and UBS hard disks, they had an arrangement with the NSE to give them an IP address and password for downloading files directly. Shah told SEBI that they shared data with Infotech Financial on one occasion as they had to write (LIX code). Shah told SEBI he had also referred friends to Infotech Financial but there was no commercial arrangement in this regard.

“In 1997, my friend Deepak Kohli (who was then in Abu Dhabi, with Standard Chartered) asked me for suggestions on cheap Indian software development. I connected him to Sunita Thomas and he ended up becoming a customer and an investor even, taking an equity stake... PRISM project, where Susan Thomas and I (then at IGIDR) sub-contracted development work to two software companies, one of which was Infotech Financial. This was in 1998 or 1999.

“The third connection was the LIX project, where Susan Thomas and I worked pro bono , but we required a software development team, and that was organised as a small contract between NSE and Infotech Financial. In February 2009, my friend, Matthieu Stigler, asked me for a suggestion for cheap Indian software development, and I suggested he speak with Infotech Financial. I am a person with strong connections into securities firms and could potentially have done differently in terms of helping (them in business development, but did not),” Shah told SEBI.