The first part in this series, titled NSE: The whole co-location based trading is illegal went online on April 3rd. This is Part 2.
The National Stock Exchange (NSE) was on course to go public sometime in December 2016. Some global equity private funds and financial institutions such as Tiger Global, Temasek Holdings, Goldman Sachs Inc., Citigroup as well as state-owned Indian lenders State Bank of India, IDBI Bank and Bank of Baroda had agreed to sell their stakes, either partially or completely.
It is baffling that a mature technology like Load Balancer was not used and instead servers were randomly turned on at NSE to “mimic” load balancing (which resulted in OPG bribing the operator(s) responsible for turning on servers so they know the exact time a server would come online)!
In all, the shareholders had cumulatively agreed to sell a total of 22.5% stake in the NSE. This would have resulted in an IPO size of an estimated Rs.10,000 crores ($1.5 billion then) with a valuation of around Rs.44,450 crores. But then the co-location scam blew up in their (NSE) face and suddenly there was a spate of resignations with many running helter-skelter. While many investigations have been opened, like all others, these too are meandering along, with the perpetrators roaming free as if they have nary a care in the world. With this scam hanging like a Damocles’ sword over its head, the NSE cannot afford to go public. Put another way, no one will buy its stock. So another way has to be found to:
- Boost the valuation to close to Rs.80,000 crores (something that was allegedly promised to the early stage investors) and
- Make all the crimes of the founder-executives somehow go away with a slap on the wrists
Does the regulator know the depth of the crime?
India’s Finance Ministry always gets a non-financial person to run it (India’s curse) and thereby allows venal interests to get their way since the man at the top seldom has a grasp of the nuances of the ministry. Should the same dispensation continue, assuming that the National Democratic Alliance (NDA-3) comes to power in 2019, there will be major shocks to the financial infrastructure of the country that could stall the progress of the nation. The Securities Exchange Board of India (SEBI) cannot allow the NSE executives to escape with a rap on the knuckles unless it can conclusively prove to itself and to the public, whose interests it represents that there was no malfeasance. When the whole co-location based trading was illegal, how can it be just a simple matter of levying fines at the people who were at the helm? Consider the following:
- So far, none of the forensic audit reports of NSE by various firms have been shared in the public domain. PGurus reached out to one such forensic auditor repeatedly but the calls were never answered. That begs the question, “Why the secrecy?”
- When a select few got a head start of 3 hours and the details of the Order Book along with the best algorithm to use to maximize profits, what sort of financial crime would this come under?
- With copious amounts of proof available, why do individuals like Ajay Shah, who got access to time-series data from the NSE servers that helped him to write algos with his wife and others, which in turn he sold to FIIs for profit, continue to roam free and spout forth wisdom? Shah is named in the First Information Report (FIR) in connection with his role in the OPG Securities / NSE co-location scam.
It is baffling that a mature technology like Load Balancer was not used and instead servers were randomly turned on at NSE to “mimic” load balancing (which resulted in OPG bribing the operator(s) responsible for turning on servers so they know the exact time a server would come online)! Great randomness indeed. And this exchange hopes to list for Rs.40,000 crores or more! This will only happen in India.
What is the way out for NSE?
This will be discussed in the next segment. Stay tuned.
 SEBI tells National Stock Exchange to file IPO documents again – Feb 11, 2019, VCCircle.com
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