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[1] 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[2].
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[3]. 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[4]. 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[5].
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.
Entrenchment
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.
Continued…
References:
[1] Anatomy of a Crime – Sep-Oct 2017, PGurus.com
[2] Anatomy of a Crime P2 – The amount of the HFT loot – Sep 25, 2017, PGurus.com
[3] Ajay Shah CV – nipfp.org
[4] Ajay Shah: Cambridge Analytica-style mastermind of financial markets – Jun 10, 2018, Sunday Guardian
[5] Anatomy of a Crime P3 – How did they loot? Oct 2, 2017, PGurus.com
His first book NDTV Frauds has been published and is an Amazon Bestseller.It ranked second among all eBooks that were self-published in 2017.
His second book, The Gist of GSTN which too is available on Amazon as an e-Book and as a paperback.
His third book, The Rise and Fall of AAP is also available in print version or as an e-Book on Amazon.
His fourth book, C-Company just released to rave reviews and can be bought as a print version or as an e-Book on Amazon.
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[…] 1 of this series called Entrenchment. Part 2 talks about How Ajay Shah shaped the narrative. This is Part […]
[…] mentioned in Part 1 of this series, I had wondered aloud as to why some essential (at least to me) information was kept out of Ajay […]
Dont know why BJP is not taking these cases up. All the major action being seen today is because of Swamy. Be it PC, Karti, Sunandha P, Ram Temple, Temple under the relms of Gov, Kashmir, 2G, GSTN …. All these are where they are because of Swamy. Without fear of the law no culprit will stop doing what they are doing and finally the day will come, where corruption will be the same as in Cong era, except that people in high position are not involved but most of the people in next below level will be involved. How much difficult is to identify moles and punish few so that rest would mend their ways. Bringing culprits to book is becoming distinct dream.
Such a serious financial fraud has tumbled out, the Government of the day is looking other way as if nothing has happened. They are calling themselves Chowkidar, Pratham Sevak,etc., If the sleepy Chowkidhaar is not aware of the scam one can understand, still it is unpardonable, when the Chokidhaar is spurred into action, as the matter is in public domain, what is stopping ruling NDA Govt from moving from heaven to earth to bring out all facts and bring all the culprits to the book. All the law forcing agencies MUST have initiated investigation suo motor action, when it is in public domain and charge sheeted the offenders. But we are living in different times. For establishing rule of law and equity, you will have to knock the doors of judiciary. Strangely, the judiciary is giving late night hearing and relief to the offenders. Where is Rule of Law exist in India ? An English translation of a poem written by German Poet Erich Fried, which reads as below :
It has happened and it goes on happening and will happen again, if nothing happens to stop it.
The innocent know nothing, because they are too innocent.
The poor do not notice, because they are too poor.
And the rich do not notice, because they are too rich.
The stupid shrug their shoulders, because they are too stupid.
And the clever shrug their shoulders, because they are too clever.
The young do not care, because they are too young.
And the Old do not care, because they are too old.
That is why nothing happens to stop it.
And that is why it has happened and it goes on happening and will happen again.
The above song was quoted by Dr Jagmohan Malhotra, former Union Minister & Ex-Governor of J&K in his famous book My Frozen Turbulence in Kashmir
BJP govt does not want to act…. it is the sickness in them & also general public unable to garner people to revolt against them