Anatomy of a crime P3 – How did they loot?

The loot of over Rs.50,000 crores over a five-year period could not have happened without the connivance of NSE top brass

The loot of over Rs.50,000 crores over a five-year period could not have happened without the connivance of NSE top brass
How NSE allowed some brokers to make tons of money

In Part 1, I described how computers entered the Stock markets and how in the recent times High-Frequency Trading (HFT) has been gaming the markets in the United States of America. Part 2 describes the amount of money looted by a small set of players, close to Rs.50,000 – Rs.70,000 crores ($7.7B – $11.5 B) over a five-year period.

Another whistleblower, who worked as an ex-employee of Alpha Grep, had said in his second letter (he had sent 2 letters to the NSE in 2015, which they ignored and when Moneylife asked them as to why they were keeping silent, NSE sued Moneylife).

In this part, we describe how a few benefited at the expense of many.

How can one make money every day in the Stock Market?

This has been a question that has plagued many an investor. No matter how smart your algorithm, you are going to have a few up days and a few down. The only way to ensure that you have an up day, every trading day is to have an advantage that others don’t.

Some brokerage firms got access three hours before the NSE opened

Another whistleblower, who worked as an ex-employee of Alpha Grep, had said in his second letter (he had sent 2 letters to the NSE in 2015, which they ignored and when Moneylife asked them as to why they were keeping silent, NSE sued Moneylife). He (sometimes referred to as Ken Fong in posts) wrote that  over a period of more than five years, the full order book, with tick-by-tick, was available for manipulation and to conspire hours earlier, considering that the Singapore market opens at 6.30 AM Indian time, while Indian market begins operations at 9.30 AM. It should be kept in mind that India’s Stock market is influenced by Singapore markets where only Foreign Institutional Investors (FII)s and very few others have access. This is like getting the question paper a day ahead of the examination! In Part 2, a rough calculation of how much money was made is described.

Was OPG Securities cornering the market?

Following a series of complaints which alleged that certain brokers including OPG Securities colluded with NSE’s employees/ outsourced staff of NSE to obtain information regarding load and starting of server including backup server, the Securities and Exchange Board of India (SEBI), directed its Technical Action Committee (TAC) to constitute an Expert Committee to look into these allegations. This was sometime in early 2015. The committee in its report stated that OPG securities were consistently logging in first on servers that had better hardware. The report captured the connection details and determined that OPG Securities was often the first to connect to the servers.

Deloitte Touche Tohmatsu, which did a forensic review of the NSE’s co-location facility found that the logs for Server 27 (TBTCOLO27) show that between December 2012 and May 2014, OPG was the first to connect on 357 trading sessions out of 364 sessions.

Who else benefited?

The list is long. Some names mentioned were Chanakya (owned by Sunita Thomas, wife of the trading head at NSE, Suprabhat Lala), Alpha Grep and Omnesys Technologies Pvt. Ltd. Another company was Infotech Financials, of which Sunita Thomas was a Director. OPG was using Infotech’s technology. More interestingly, for some time, the address of Infotech Financials was the same as the residence of Lala!

Who were aiding and abetting this?

The whistleblower goes on to allege that this could not have been possible without the involvement of top bosses in several organizations such as the NSE, SEBI, the bureaucrats in the Finance Ministry and most importantly some minister(s) in the cabinet. More on this in the next post.

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An inventor and out-of-the-box thinker, Sree Iyer has 37 patents in the areas of Hardware, Software, Encryption and Systems.

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.

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