Ajay Shah and his role in HFTScam
I have been writing about the High-Frequency Trading scam that made gobs of money for a select few in my series titled Anatomy of a Crime. This five-part series describes in layman terms the claims of a whistleblower who had said that a select few had made somewhere between Rs.50,000-Rs.75,000 crores in a five year period.
Looking back at how the HFT scam turned out, one can see that Ajay Shah was one of the key players that Chidambaram used to ensure that NSE enjoys the Premier-Exchange-of-India status
According to the whistleblower, on top of the inherent advantages enjoyed by HFT firms as listed above, National Stock Exchange (NSE)’s top brass, in connivance with some top bureaucrats in the Finance Ministry and (drum roll please!) powerful ministers in the United Progressive Alliance (UPA) government, manipulated and milked the system for all it was worth.
Robbing in plain sight
How does one make money in the stock market with millions of buyers and sellers? How does one tweak it such that regardless of whether the coin comes up heads or tails, a select few always win? The stock market must be rigged in such a way that from a distance, it would look as if everything is completely above board and functioning. To rig this, someone who is familiar with the functioning of the Stock Market as well as how the hardware was being designed must be in the mix. This is where Ajay Shah comes in.
Who is Ajay Shah
Ajay Narottam Shah, a Senior Fellow at the National Institute of Public Finance and Policy (NIPFP) states in his resume that he got a Doctorate in Philosophy (Ph. D.) in Economics from the University of Southern California (USC), Los Angeles. This seven-page resume is long on details of his publications, awards, and honors but what struck me was that it does not mention the year he graduated from USC and the topic of his thesis.
Son of Dr. Narottam Shah, the founder of Centre for Monitoring Indian Economy Pvt. Ltd. (CMIE), Ajay Shah is currently on the board of several organizations, including CMIE. In a scathing article about Ajay Shah, whom the Sunday Guardian named as Flash Boy, the post writes about how the ongoing Central Bureau of Investigation (CBI) probe revealed that Ajay Shah, as part of CMIE collected the trade data of National Stock Exchange (NSE) and came up with a way to exploit the TBT (Tick by Tick) architecture that was in place in NSE’s servers. Using the term Flash Boy is a bit of a tongue-in-cheek; In Michael Lewis’s Flash Boys, Brad Katsuyama and his colleagues are the ones who are credited with blowing the whistle on the High-Frequency Traders in the US, whereas here it is the opposite. A detailed explanation on how the money was looted is described in Part 3 of my Anatomy series.
Big proponents of HFT
When High-Frequency Trading was being introduced in the United States, Ajay Shah and his wife Susan Thomas became big proponents of this technology, listing out its virtues and how it creates liquidity in the market and so on. Ajay Shah, with help, either got himself planted into Committees or had his acolytes pitch the virtues of causes he espoused.
In the initial days of NSE, it was going up against a 140-year old Bombay Stock Exchange (BSE). BSE was always coming second thanks to the patronage of the Government bestowed upon NSE, the new kid in town. Shah became the President of his Dad’s company CMIE, after returning from the United States, having done a stint at Rand Corporation. Perhaps sensing the wind favoring NSE, he leveraged his connections and used his clout in the government club/ fraternity, to actively lobby for furthering the interests of NSE. Like the saying Jo jeeta wahi sikandar, he was with the winning side (NSE) and whatever he said or suggested was accepted without murmur or dissent.
Looking back at how the HFT scam turned out, one can see that Ajay Shah was one of the key players that Chidambaram used to ensure that NSE enjoys the Premier-Exchange-of-India status. Sensing the rapid growth of the rival Financial Technologies India Limited (FTIL) Group, he ensured that FTIL was not invited to be part of any government committee formed to establish frameworks for the markets. What must have been ironic for him was the fact that FTIL often beat NSE to the market and also grabbed market share!
By and large, over the formative years of evolving Indian markets in the late 1990s and early 2000s, Shah influenced the entire finance community with his erroneous and inaccurate command over the markets, which ensured it remains with a closed group of buddies and power brokers.
 Anatomy of a Crime P2 – The amount of the HFT loot – Sep 25, 2017, PGurus.com
 Ajay Shah: Cambridge Analytica-style mastermind of financial markets – Jun 10, 2018, Sunday Guardian
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