India’s Algo trading scandal: a Tale of Two Exchanges and One Somnolent Regulator (SEBI)

SEBI exists to protect shareholders' interests but is it incompetence or apathy or the influence of C-Company that makes it look the other way?

SEBI exists to protect shareholders' interests but is it incompetence or apathy or the influence of C-Company that makes it look the other way?
SEBI exists to protect shareholders' interests but is it incompetence or apathy or the influence of C-Company that makes it look the other way?

“The stock market is rigged,” said Michal Lewis in 2014 after the publication of ‘Flash Boys,’ his racy novel that took the Wall Street by storm for it meticulously detailed the shadowy world of suited-booted high frequency and algorithmic traders who were skimming ordinary investors. The algo trading and preferential access scam at India’s National Stock Exchange (NSE) and now even the Multi Commodity Exchange (MCX), two monopoly bourses, has played as per the script by Lewis. It exposes the dark underbelly of the country’s financial markets and ridiculous inefficiency of its regulator the Securities and Exchange Board of India (SEBI).

New revelations

PGurus has reviewed a report of the forensic audit related to MCX, which was conducted by accountancy firm T R Chadha & Co. this year. The audit has further bared the contours of the algo trading scam that first came to light in 2015 and engulfed India’s largest stock exchange NSE after a whistle-blower exposed its key elements in 2015.

Does SEBI not understand the importance of such data? If it does, where is SEBI’s action? Should heads, not roll at SEBI for its inefficiency to effectively and timely decode two major exchange scandals and restore public trust in markets that it is supposed to guard?

The main characters involved in the scandal at MCX are the same who were part of the cabal at the NSE. The modus-operandi at MCX, so daringly exposed by the auditor, comes close to that at NSE. Even the audit report seems surprised on the point of why MCX, a first level regulator as an exchange, did not check the background of researchers whom it was sharing data with? A simple Google search would have revealed how those it was sharing data with, were already tainted and named in an algo trading scandal that was raging at NSE for the past several months as it was the most important talking point in board rooms of every financial market intermediary then.

SEBI, which is known to conduct regular inspections of exchanges, too failed to get any wind of the dubious sharing of data by MCX. Or it did and kept mum? Only a proper questioning of those SEBI officials who have been handling MCX as their work portfolio can throw some light on this. Is accountability not the Dharma of the regulator that it so preaches? In the case of MCX too, the same whistle-blower who wrote on NSE blew the lid off the scam.

Ease of doing scandals

In June 2016, MCX was religiously preparing to share critical market and trading data with Susan Thomas, a researcher at the Indira Gandhi Institute of Developmental Research (IGIDR) and a New Delhi based algo software developer Chirag Anand on her instructions. Thomas is married to Ajay Shah, the blue-eyed boy of UPA regime finance minister P Chidambaram. Shah was also acting as a consultant to the Dhoti-clad politician’s ministry. In just a month after Mrugank Paranjape took over as the MD and CEO at MCX in May 2016, the exchange wanted to roll-out a ‘pipeline’ of daily market data to IGIDR for research on commodity transaction tax (CTT) that was imposed by Chidambaram in 2012.

The audit report reveals that the Commodities Trade Tax (CTT) study was just a pretext and the design seemed to get ‘live market data’ from MCX, which could be used for ‘developing algo trading strategies.’

A sloppy agreement without any legal vetting was entered into between MCX and IGIDR, which at the research organization was signed by its registrar in Mumbai. But it has come to light that there existed an ‘undertaking’ signed by Thomas for sharing of separate data and which, in the own words of Thomas to the auditor, nobody was aware at IGIDR and she was not required to inform them. The audit suspects that it was this ‘undertaking’ based on which MCX shared crucial ‘live trading’ data with Chirag Anand, an algo software developer, on instructions from Thomas[1].

MCX executives told the auditor that as per their understanding Thomas had given the undertaking on behalf of IGIDR. Anand did not work with IGIDR, when he as per the audit report, was dictating to MCX his requirement for data. Anand has worked with IGIDR earlier and also closely with Shah in the National Institute of Public Finances and Policy (NIPFP).

Data demanded by the Delhi-based software designer included 22 fields regarding trade data, 24 fields of order data, 37 fields of bhav copy and 64 fields of master file data. The auditors have said that the MCX research team was directly in touch with the technology team to extract the required data without involving people from operations and compliance departments.

What constituted ‘live data’? MCX gave out details of pending orders that were still valid up to a certain date at the exchange level, actual order quantity, and display quantity along with quantity filled ‘today’, all of which reflect actual transactions done against orders on that date. Further, the report states that “the researcher, by gaining access to ‘disclosed quantity’ and ‘actual quantity’ on a daily basis, is made aware of the actual quantity placed by the trader, which the trader did not want others to know as it would result in knowledge of sensitive data.”

“It seems ‘researchers’ want to gain access to data not available to other traders and not required to be available as per the order of the said trader,” the draft forensic audit says[2]. The audit report further shows there is no trail of that data was shared with the researchers as the files uploaded on the FTP server have been deleted.

When asked by the auditor as to why Anand required so much trading data, Thomas said, “Chirag’s inputs are required on this.” Thomas has also accepted that she was not specifically authorized by IGIDR for signing an undertaking with MCX but the faculties are allowed to do so.

Does it not amaze anybody that the lead researcher Thomas did not know what an algo software designer Anand required such trading data for? What intrigues more is that Thomas has accepted that she only required historical data and not ‘live data.’ So, for what ‘hell’ did Anand use such crucial data for?

When the auditors asked Paranjape, he tried to wash off his hands by saying, “the operational aspect was completely monitored by the research department and they should be in a position to answer.”

One Raadheshyam Yadav, from MCX’s IT Department, said: “Live data was never shared.”

Seriously? Even an amateur trader will say what use can be of the info on “pending orders that are yet to be executed and especially those orders where full quantity is not disclosed.”

Lewis has dumped mountain size of literature on how HFT and algo traders can gain a colossal advantage if they know just milli seconds ahead about “the orders pending to be executed.”

In the case of MCX, this info was shared with algo software designer ages in advance.

V Shunmugam, a researcher at MCX, said: “We believed in the capability of the IT team to advise us… the IT team being the guardian of data to be shared with the outside world.”

Does SEBI not understand the importance of such data? If it does, where is SEBI’s action? Should heads, not roll at SEBI for its inefficiency to effectively and timely decode two major exchange scandals and restore public trust in markets that it is supposed to guard?

In the case of NSE, SEBI took several months to order an investigation and the job done has been shoddy. Nobody is asking the regulator why it entrusted the job of the audit to those firms that are conflicted with NSE? Yes, apart from the big four accounting firms, ISB, which has given out a figure of Rs.25 crores total gains to beneficiaries in the NSE preferential access scam, is conflicted as it has been paid by NSE in the past. ISB report is lubricious and even the lowest paid assistant of Lewis would put that report in a bin but not SEBI[3].

Connecting the dots

The duo of Shah and Thomas has been working with NSE since its inception. As per Shah’s own admission to investigators in the NSE algo scam, they have had unabashed access to data from NSE for long and an official agreement was entered into only post-2012 [4]. All crucial data by NSE was shared with Shah and Thomas up to 2012 without any paper work. Lewis galore!

The MCX audit report, which is more direct than the one presented by auditors in case of NSE, is just a showcase of the prowess of both Shah and Thomas. What is the secret of their impunity? The answer to this lies in their political connections and leanings. By now it is amply clear to the world how Chidambaram was the driving force behind NSE bosses Ravi Narain and Chitra Ramakrishna and even Shah. Putting the pieces together one can know the chief beneficiary of the algo trading scandal at NSE and MCX and the reason to silence of SEBI officials who swear allegiance to the bureaucrats close to the UPA minister and are handling MCX portfolio[5].

Scandal at NSE and now MCX are beyond SEBI’s scope and a full-fledged criminal investigation should be ordered into the happenings at both the exchanges as it involves siphoning of public funds. There is abundant material for criminal prosecutors to come in.


[1] Forensic auditors indicate IGIDR used data shared by MCX to develop an ‘algo-trading strategy’Apr 24, 2019, The Hindu Business Line

[2] MCX-IGIDR agreement had many gaps, reveals forensic audit reportApr 24, 2019, The Hindu Business Line

[3] NSE Algo Scam: Is SEBI’s Shoddy Investigation Designed To Hide Its Own Incompetence? Aug 20, 2018,

[4] Algo trading scam and Ajay Shah’s NSE linksAug 2, 2018, The Hindu Business Line

[5] Ajay Shah: Cambridge Analytica-style mastermind of financial marketsJun 9, 2018, The Sunday Guardian

[6] T R Chadha & Co. audit report on MCX

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  1. […] So who are the officials who wish to protect the guilty in MCX? Can they be named and shamed? Officials of MCX are not responding to specific queries, including how data was reportedly taken by Dr Susan Thomas, a Doctor of Philosophy (PhD), who is also a professor at Indira Gandhi Institute of Developmental Research (IGIDR)[4]. Thomas was helped by her associate, Chirag Anand, a Delhi based Algo software developer. Her husband, Ajay Shah, is being probed for a similar charge in the NSE Algo scandal[5]. […]


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