Ajay Shah is alleged to have lobbied for NSE, using his clout in the Finance Ministry.

 

The recent FIR by the Central Bureau of Investigation (CBI) on Ajay Shah has confirmed murmurs that were doing the rounds of exchange circles about the involvement of insiders in the colocation scandal. The CBI probe and the resulting raid laid bare the claim of India’s largest exchange, National Stock Exchange (NSE) of being the provider of a transparent and unbiased trading platform, and brought to the fore the murky dealings of a coterie.

NSE was the first exchange in the country to provide a modern, fully automated screen-based electronic trading system, which offered easy trading facility to the investors spread across the length and breadth of the country. Were some of those who were credited with doing this herculean job also the ones who perpetrated the colocation scandal and illegally benefited from it, with the tacit blessings of those at the helm of power at the time? Among names of alleged insiders is that of Ajay Shah, who continues to be employed with National Institute of Public Finance and Policy (NIPFP) as faculty.

 

‘FLASH BOY’ OF INDIA

The CBI’s probe revealed that Ajay Shah collected NSE trade data in 2005-06 under the garb of doing research, while he was employed with Centre for Monitoring Indian Economy (CMIE). He was seen by the probe as being instrumental in the exploitation of the NSE TBT (Tick-By-Tick) architecture. In this architecture, data was disseminated in a sequential manner, whereby a stock broker who connected first to the server of the stock exchange received a “tick”, i.e. market feed, before the stock broker who connected later. This gave undue advantage to entities that were able to connect to the exchange server earlier than others.

As CBI details, Ajay Shah helped develop the algorithm software for OPG Securities, having a brilliant insight on the NSE server and its algorithms. CBI has alleged that 90% of the time, OPG Securities was first to access the NSE servers and thereby gained unfair advantage over other entities, thus making undue profits from their consequent trades. CBI has found that Sanjay Gupta, the owner and promoter of OPG Security Pvt Ltd used the server architecture of NSE with the help of Ajay Shah and may have shared part of the proceeds.Ajay Shah may have designed such algo software for some other firms as well, with profit sharing agreements such as Alpha Group FPI (Singapore) and Omnesys. Shah, along with his wife Susan Thomas developed NIFTY50, which is the most successful product of NSE. However, in an unprecedented gesture, the NSE has been giving Ajay Shah and Thomas a hefty annual royalty as a certain percentage of the income generated of Nifty trading. It may be noted that Nifty contributes nearly 80% of the turnover of NSE. This was while the couple is doubling as faculty with government institutions. Susan is a professor in Indira Gandhi Institute of Development Research (IGIDR). This information was, however, withheld from the public when the NSE filed its red herring prospectus for the now “on-hold” IPO.

Ajay Shah, who is a professor with NIPFP, is alleged to have lobbied for NSE, using his clout in the Finance Ministry and also “influenced” FIIs and PNote activities on NSE. Ajay Shah is said to have gained entry into the good books of the then Finance Minister, P. Chidambaram during 1997 when he and his wife were working on the methodological design of NIFTY50 and were creating the algorithm for it. He was invited as an expert in front of Parliament’s Standing Committee on Finance, which was deciding on amendments to the law to support cash settlement required for index derivatives. Ajay presented his findings before the then Finance Minister, P. Chidambaram in 1997.

It is said that OPG Securities Pvt Ltd was given access, using the colocation facility during the period 2010-12 that enabled it to log in first to the exchange server of NSE and receive data before any other broker in the market. The colocation facility offered by the NSE allowed low latency and fast execution to its trading members. This set-up of server gave a 10:1 speed advantage in comparison to other brokers. It is reported by an insider that in 90% of the cases, OPG Securities was the first to log in.

MAKING OF THE SCAM

Ajay Shah has a degree in Aeronautical Engineering from IIT-Bombay and PhD in Economics from UCA, Los Angeles. Prior to becoming a professor at National Institute for Public Finance and Policy (NIPFP) since 2007, he also held positions at the CMIE (Mumbai), IGIDR (Bombay) and the Ministry of Finance. Over the past decade, he was extensively involved in the policy process in the reforms of the equity market and the new pension system.

Currently, his wife Susan Thomas is a faculty member at IGIDR (Mumbai) and also served as a member/chair of various committees constituted by SEBI, RBI and NSE on secondary markets, government securities, and foreign exchange.

It may be noted that the entire colocation issue started around 2010. Prior to this, the then chairman of SEBI, C.B. Bhave had sent Prof Phatak and some others from SEBI to the US to study colocation. Maestro Shah is said to have met them in the US and discussed the issue with them. Consequently, NSE was allowed to start providing colocation facility without formal application, nor was any regulation on the same put in place. The facility was named as Direct Market Access (DMA) and was given to a handful of FIIs who were rumoured to be close to the then Finance Minister, P. Chidambaram. Having designed NIFTY50, and knowing the algorithm inside out, Shah and his coterie inside NSE benefited by giving preferential access to a few entities at the expense of others, according to insiders.

Despite the SEBI (in its November 2011 status paper on secondary market) admitting that no specific guidelines were prescribed on algo trading and colocation, the same was introduced by NSE. The entire thing was kept so low-key by NSE that there are no public records about NSE starting HFT, other than in its 2009-10 annual report statement which read, “In line with exchanges across the globe, NSE has provided its members a colocation facility for their DMA and ALGO Trading. The colocation setup is a state of the art, highly robust, resilient and secure infrastructure.”

POWER COTERIE

Ajay Shah is said to have a member of the power coterie close to then Finance Minister P. Chidambaram, and Joint Secretary for Capital Markets, K.P. Krishnan. The Finance Ministry provided projects worth minimum a crore of rupees to Ajay Shah’s group in NIPFP. From the NSE Data Centre side, Omnesys was given preferential treatment by the then Joint Managing Director of NSE, Chitra Ramakrishna.

A complaint alleges that the base technology at the broker’s end is OPG Securities and the management of data centre was being done by Omnesys Technologies, in which NSE is holding 26% stake, while Chitra Ramakrishna was sitting on the board of Omnesys Technologies despite the parent of Omnesys being a broker of NSE. This is awaiting further investigation. It is now understood that OPG Securities alone had traded worth over Rs 6,000 crore on NSE using colocation facility. In addition, it is believed that the “order book” of the exchange was exported to FIIs and FPIs, helping them make illegal gains in the stock market. Incidentally, Suprabhat Lala, who was administration head at NSE, was married to Sunitha Thomas, who is sister of Susan Thomas. Sunitha Thomas and Ravi Varanasi, who was head of trading at NSE, had promoted the company that designed the algo for OPG Securities. Ajay Shah is accused of accessing tick-by-tick data from MCX for commodities, from MCX-SX for currency, from NSE & CCIL (Clearing Corporation of India) for Indian bond markets and yield curve, and currency market data from the Reserve Bank of India (RBI). In the current times, data is as precious as gold and oil.

Despite such charges against Ajay Shah by the CBI in the over Rs 50,000 crore colocation scandal, he continues to hold post of professor with NIPFP, which is an autonomous research institution in the Ministry of Finance. He also serves as economic advisor on the boards of various institutions and government bodies. He is also believed to be close to a lobbying agency in the western world that exports critical data about Indian financial markets. A thorough probe (which is yet to take place, owing to hidden backers of Shah and his coterie) may reveal that this scandal is no smaller than that of the Cambridge Analytica scam, in which the international data mining company exported confidential data.

Will a comprehensive probe take place, or will well-placed individuals scuttle such an investigation in their efforts at trying to show that Shah and his associates have committed no offence? Thus far, he has been dealt with kid gloves. Whether these will come off or not depends on the acting Finance Minister, Piyush Goyal. Faith in the stock exchange will take a hit unless the truth, the whole truth and nothing but the truth comes out about the NSE colocation scandal

 

Replies to “Ajay Shah: Cambridge Analytica-style mastermind of financial markets”

  1. FAULTS OF NARENDRA MODI IN LAST 4 YEARS OF HIS GOVT
    1.MODI lost touch with people in last 4 years after he became PM.He depended fully on a clever lawyer cum Minister his friend soul mate and well wisher Arun Jaitely who is a Virtual PM.
    2.Modi started dreaming of being a International world leader by his whirlwind tour of world in last 4 years whereas his internal policies made him unpopular to get votes in next LS election. He does not want to see and listen peoples voice.He doesnot want to interact with his voters rather impose his views by Mann Ki Baat.
    3.He is alienated from people by his hangover of power and adulation. He was a MONK YOGI before he was PM but after he became PM he started living in a dream world.But power goes to his head now after become PM.
    4.He thought he has no challenge from any one as there is no alternative of him in India.But ABV also made same mistake although he done great in his 5 years rule as NDA PM.But he forget to know pulse of people for which he lost miserably in 2004 and lying in Bed.
    5.Modi won by a strong negative vote against SONIA GANDHIs anti Hindu policies and appeasement of Christian and Muslims not by his popularity.Sonia Gandhi blundered as she is illiterate fool and fascist. MODI ought change his style of functioning and directly meet people from all walks of life AT PEOPLES DARBAR in his 7 RCR.
    6.HE has just one year to renew his PM post for 5 years and the next 5 years are crucial and important for himself and his party.he should remove all congressman favorites bureaucrats from his advisor and appoint people from RSS ABVP BMS and BJP.
    7.In a parliamentary democracy your roots must be with voters BUT NOT TO bureaucrats who don’t understand the mindset of voters.They are slaves of masters/master of slaves.WISH MODI another TERM of 5 years in 2019 but I don’t see that is happening by his arrogant nature.
    8.Modi imported bureaucrats economists from US and appointed them in democratic posts when he has abundance of people in his party.And BJP RSS VHP ABVP and BJYM BMS has talented people,who know hopes aspirations of people.
    9.In a democracy you can’t impose your favorites and start ruling with high handedness arrogance like you done in NITI AAYOG FM FS RS and IRS.He must remove his FM AND FS Aadhia .
    10.Modi thinks himself as honest but his FM FS are most corrupted and egoistic hold the country at ransom.He will cry in 2019 election when he will see that whole India is against him like he did in Gujarat last .
    Karnataka Voters showed that they had used NOTA as BJP failed to espouse their causes in Karnataka in last 5 year as when their SONS are killed by SDPI PFI and Congress but Central Govt says it has no Power to take action on them as it’s a state subject.
    In India Centre has its prime duty to save all its citizens from attack on their lives by killer gangs and if needed centre can ban them but shirking from responsibilities by saying that ban on SDPI and PFI can’t be taken by centre as it is s state matter and unless state writes them they can’t act. AMIT SHAH said that in open manch.
    A Congress govt can have the courage to ban SIMI and IM but a BJP govt can’t do that.I feels shame for a Coward Impotent and spineless govt.bjp WORKERS ARE KILLED BRUTALLY BY TMC CPM SDPI PFI IN WB AND KERALA BUT CENTRE IS NOT ACTING ON THE STATES.
    I SUGGEST FFOLLWING REMEDIAL MEAURES IN NEXT ONE YEAR.
    1.MANDATORY VOTING BY ALL VOTERS
    2.REMOVE 370 AND BIFURCATE J&K TO 3 STATES
    3.BRING IN JUDICIAL ACCOUNATBILITY COMMISSION.
    4.BRING IN UNIFORM CIVIL CODE,BAN HALAL TRIPLE TALAQ AND BAN SDPI PFI AIMPLB.
    5.ENACT LAW FOR STATIONING NATIONAL COUNTER TERRORISM CENTRE IN ALL STATES
    6.RAM TEMPLE BY A ORDINANCE AND COMPLETED IN 6 MONTHS WITH 24 HOURS WORK BY ALL.
    7.MAKE GST SINGL EPOINT FIRST POINT LIKE TDS TCS Remove all other forms and inspector raj.
    However we are citizens of India and vote for BJP as we have no option.

  2. BJP WILL LOSE 2019 FOR ITS OWN BLUNDERS
    Before 2014 election BJP did not expected that It will win election against Congress with huge majority. It worked hard with all types of professional canvassing in all states particularly in North where Hindu Population is there and Congress persecuted Hindus in particular.
    When Narendra Modi was brought by a syndicate of the Then BJP President Rajnath Singh and Arun Jaitey all old leaders and D4 get annoyed.They tried their best to stop Modi coming to Delhi but workers wanted him to come to Delhi and head the canvassing.
    Modi came to Delhi and all old leaders are sidelined. Modi spearheaded the prachar single handedly with support fro Gujarat Lobby and funding.
    Modi started his offensive and aggressive on all meetings and innovative methods were used to attract voters.Voter being disgusted with Sonia Gandhi anti Hindu policies drawn to him.And Modi won by a huge margin in 2014.His promises are attractive and popular and Voters voted him enmasse.
    But after he became PM he forget all he promised to his own electorate He became a stooge of his own ego and highhandedness. The throne of PM is secular one and whosoever sits on it became a protagonist of Secularism and Islam Christian.MODI became a secular and highly democratic in autocratic India.Indian loves autocracy as they lived under that system for 1200 years.MODI failed to pass many bills as he has no majority in Rajyasabha and he could not muster support from regional parties.
    His own party workers are being brutally killed in Kerala Karnataka and WB but he did not raised his voice against that or warned state govt to stop such violence or face consequences. HIS democracy killed hundreds of BJP workers.
    Now all workers and voters feared to go to vote as they know this Govt cant save them after they vote BJP so they did not went to vote.All they know a coward impotent and defensive BJP govt could not save their life from murderers of Congress PFI SDPI ISI ISIS IM SIMI so they won’t go to vote.
    NONE UNDERSTAND PSYCHE OF HINDU VOTERS AS THEY ARE LIVING IN FEAR IN ALL TOWNS CITIES AND VILLAGES UNDER A ISLAMIC TERRORIST SYSTEM.AND A CENTRAL GOVT OF BJP FAILED TO ACT ON THE STATE GOVT GIVING SHELETER TO THE KILERS AND NOT GIVING SAFETY TO RSS BJP WORKERS SUPPORTER/ VOTERS.UNLESS FEAR PSYCHOSIS ENDS BJP WILL NEVER WIN IN INDIA.
    WE HOPE NARENDRA MODI LEARNS LESSON AND REPLACE ALL HIS MINISTERS FORTHWITH AND INDUCT NEW MINISTERS FROM YOUTH RSS VHP BJP BAJARANG DAL AND SAVE HIS VOTERS BY STRONG LAW AGAINST TRAITORS AND ANTI NATIONAL.
    SABK ASAATH SABKA VIKASH WILL DROWN MODI FULLY IN 2019.

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