Algo trade software case: SEBI fines Rs 11 crore NSE and 7 others

New Delhi: The capital markets regulator SEBI on Thursday imposed penalties totalling Rs 11 crore on 8 entities, including National Stock Exchange (NSE) and its former chiefs Chitra Ramkrishna and Ravi Narain, in a case pertaining to software related to algorithmic trading. The regulator has levied a fine of Rs 1 crore each on NSE, Ramkrishna and Narain. Also, a fine of Rs 1 crore has been imposed on Suprabhat Lal, who was an NSE official at the time of the violation.

Also, the regulator slapped a penalty of Rs 3 crore on Ajay Shah, who was on the board of NSE's subsidiary NSSCL, and Rs 2 crore on Infotech Financial Services Ltd, a company which was in the business of developing algorithmic software and selling it to market participants.

A fine of Rs 1 crore each has been imposed on the latter's Directors – Sunita Thomas and Krishna Dagli. Thomas is the wife of Suprabhat Lal and sister-in-law of Ajay Shah.

The case relates to NSE not awarding the contract for computing Liquidity Index (LIX) to its own specialised subsidiary, IISL.

The contract was awarded to Infotech indicating the undue support provided by the exchange to Infotech and Ajay Shah, as per Sebi.

Sebi said that NSE and it's then officials — Narain and Ramkrishna — are certainly liable for not taking any precaution or checking the antecedents of Infotech as Algo software vendor in the securities market and failed to look at the possible conflict of interest with respect to Ajay Shah, Sunita Thomas, Suprabhat Lala and Infotech at the time of awarding the contract.

"Ajay Shah, Infotech, Sunita Thomas and Krishna Dagli have collusively worked to fulfil their commercial goals by fraudulently using the data that was obtained by them from NSE to develop Algo trading software," Sebi said in its 82-page order.

The algorithmic trading software so developed from LIX data was meant to be sold to the traders or brokers in the market to induce them to trade in securities with better trading results, on the strength that the Algo trading software was prepared out of such exclusive data not ordinarily available to other market participants, it added.

Further, the regulator said that Ajay Shah and Infotech along with its directors made huge unfair gains by preparing software related to algorithmic trading at the cost of other investors who did not have the access to such software developed on the basis of confidential data shared by NSE.

Sebi on receipt of various complaints alleging irregularities in the matter of co-location and corporate governance at NSE initiated an examination with respect to members of the board of directors of the exchange and its senior management in relation to their dealings with Ajay Shah and others for the period 2009 to 2016.

On Tuesday, Sebi slapped a penalty of Rs 7 crore on the NSE for irregularities in the dark fibre (server co-location) case. In total, 18 entities were fined with an aggregate amount of Rs 44 crore in the case.

(With PTI inputs)