Ajay Shah's family enterprise -- a case of collusion

In a massive breach of corporate governance norms in the NSE's co-location case, noted public policy academician Ajay Shah has been reprimanded by the security market regulator SEBI for collusion to access confidential market information for business purposes.

Shah and his wife Susan Thomas are credited with co-creating the NSE Nifty50 index. He has had an illustrious stint at various high-level positions, including Ministry of Finance.

However, in what could have been a criminal conspiracy worthy of celluloid screen, Shah along with some of his immediate family members created a virtual family enterprise and used their connections with NSE officials to gain a computing contract for Liquidity Index.

But, the real intent was to use the NSE's confidential data gained from the computing contract to develop algorithmic trading software for sale in the securities market, thereby compromising the integrity of securities market.

While all this was going on, the market regulator received complaints in 2017. 

SEBI decided to conduct an examination in the matter and found that NSE engaged Infotech Financial Services for computing of Liquidity Index. Shah's sister-in-law Sunita Thomas was a director in the firm. 

Interestingly, Sunita's husband Suprabhat Lala is Assistant Vice President, NSE.

The SEBI order states: "To sum it up, all the noticees were collectively responsible for misuse of the data received from NSE... the underlying intention of the noticees behind entering into said agreement was not monetary consideration, but to have access to the exclusive wealth of data of NSE, so that the same can be commercially exploited for the benefit of the noticees."

"The aforesaid leads to a conclusion that noticee no. 1 (Shah) and other noticees, 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."

Consequently, the regulator directed Shah not to hold, "directly or indirectly, any position in the management of and or in the Board of or be associated in any manner and in any capacity, with any Stock Exchange, Clearing Corporation, Depository, recognized or registered by SEBI and or with any intermediary registered with SEBI or their related entities and or with any company listed in any of the stock exchanges recognized by SEBI, for a period of 2 years".

On April 30, the market regulator directed the NSE to disgorge Rs 624.89 crore in the co-location case and also barred it from accessing the securities market directly or indirectly for a period of six months.

The misuse of the bourse's co-location facility came to light in 2015 when a whistleblower alleged collusion between a few employees of the stock exchange and brokers.

It was alleged that collusion and lax of oversight allowed a few brokers faster access to market data. IANS