The Central Bureau of Investigation on Saturday alleged that officials of the Securities and Exchange Board of India (SEBI) were bribed to fabricate the findings of an enquiry that was initiated following complaints of irregularities in the National Stock Exchange of India's co-location facility.
The investigating agency claimed that SEBI and NSE officials had received bribes from Sanjay Gupta, Director of OPG Securities, and one of the main accused in the case.
CBI's counsel made these submissions on Saturday before a special CBI court during a hearing on an anticipatory bail plea filed by former NSE MD and CEO Chitra Ramkrishna, The court dismissed the bail plea. The CBI informed the court that Ajay Narottam Shah--one of the accused--was instrumental in exploiting the co-location facility. "In the name of carrying out research, Shah collected NSE trade data and passed it on to private people. These private people individuals developed an algorithm-based software ,'Chanakya', which was then sold to selective brokers like OPG securities, who used it to abuse the co-location facility."
The CBI's counsel, quoting the findings of an audit report by consultancy firm Deloitte, said, "The TCP/IP-based TBT architecture was prone to manipulation, which compromised the fairness and integrity of the market."
The CBI further alleged that the NSE, under the leadership of Ramkrishna, "failed to implement a 'randomiser' in its TBT architecture; failed to implement a load balancer; and did not adhere to its policy of equitable allocation of IPs". The counsel further argued that the NSE, under the leadership of Ramkrishna,
"purposefully did not have defined policies and procedures with regard to Secondary Server access, which gave unfair advantage to select brokers at the cost of others". The counsel said the NSE failed to maintain backups or records of the configuration file (which captured parameters like IP address, port number and vendor file, and sequence in which ports would receive TBT data), or requests for change of the configuration file by members.
The counsel further said the NSE under Ramkrishna gave trading data to Ionfotech Financial Services Pvt Ltd, which was "misused for developing an algorithm for trading products for securities market participants. This was sold to various trading members, thereby giving them an advantage."
On Gupta's role, the CBI counsel said, "The accused gained undue advantage by consistently being the first member (or among the first three members) to connect to the TBT servers and by regularly connecting to the Secondary Server. NSE, headed by Ramkrishna, took no action to prevent this despite having knowledge of this (and its advantages). OPG Securities had allegedly mapped multiple IPs to a single server such that it would often get the first 2 or 3 connections to that server, and 'crowd out' other members."
CBI counsel informed the court that Ramkrishna shared internal information of the NSE, like its Organizational Structure, Dividend Scenario, Financial Results, Human Resources Policy and related Issues, Response to Regulator, Future projects, etc with the 'yogi', whose identity was later established as Anand Subramanian.