Since its birth in the mid-nineties, the National Stock Exchange (NSE) had been held up as a role model for how a systemically important financial institution should be run. With its demutualised structure, institutional promoters and Board-managed operations run by qualified professionals, NSE was the veritable poster-child of good governance. Sadly, this image has been tarnished in the last three years by the misdoings of a few who ran the exchange with untrammelled powers. In April 2019, SEBI’s investigations unearthed evidence of gross negligence and a complete disregard for public and investor interests at the NSE. The regulator’s five orders on the co-location scam revealed many acts of omission and commission at the NSE, that helped select market entities gain an unfair trading advantage over public investors. SEBI’s latest order detailing how NSE’s former Managing Director Chitra Ramkrishna s uo motu appointed an unqualified person to a top management role and then handed over key management and operational decisions to him, while taking guidance from a so-called “Himalayan yogi” with “supernatural powers”, reveals just how deep the rot had permeated India’s all-powerful Market Infrastructure Institution.

The SEBI order, which indicts Ramkrishna, former members of NSE’s Board and the compliance officer for violating the Code of Conduct under SECC Regulations and compromising NSE’s governance, makes three key allegations. One, in appointing an unqualified person (Anand Subramanian) to a top management role, allowing him to take key strategic decisions and paying him over-the-top compensation while deliberately not designating him as a Key Management Person (KMP), Ramkrishna failed to act with professional integrity and misused her office. Two, in sharing confidential information about NSE’s internal affairs, organisational changes and projected financials with the anonymous “Himalayan yogi” and consulting him on key operational and strategic decisions, she compromised governance at the exchange. Her interference in NSE’s compliance and regulatory functions in preparing responses to SEBI is also an infraction. Three, in giving Ramkrishna a free pass to do what she wanted and allowing her to step down despite grave misconduct, SEBI has held the NSE’s Board and its compliance staff of failing to act with professional competence. Yet, the accused have been let off with rather modest fines of ₹2-3 crore each and disbarment from markets for 2-3 years.

Clearly, the facts of the case warrant a larger investigation. There’s only so much that SEBI can do given its remit and its powers. Central investigative agencies must be brought in now to get to the bottom of this unseemly episode that resembles pulp fiction. The identity of the “Yogi” needs to be unravelled to establish motives, and the connection between Ramkrishna’s actions from 2013 to 2016 and the colocation scam that happened around the same time, needs to be uncovered. Meanwhile, SEBI’s own functioning through the NSE saga needs critical evaluation and correction. The regulator’s response was tardy to whistle-blower complaints, and it gave the NSE too long a rope. Finally, given the obvious failure of the many checks and balances incorporated into NSE’s governance structure, SEBI should undertake a comprehensive review of NSE’s systems and and the persons manning them before it green flags the exchange’s public listing.

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