Raids that raise more questions than answers

Why would sophisticated algo traders be running around with cash, if they were able to make billions of white money digitally?

Last week, teams comprising income-tax officials and, some say, those of the Enforcement Directorate raided the premises of former and current National Stock Exchange (NSE) executives, brokers, and even academicians.

The raids began just a day after the exchange submitted reports by the Indian School of Business (ISB) and EY to the Securities and Exchange Board of India (Sebi), which is investigating alleged irregularities in its co-location and algorithmic trading systems.

In the end, a haul of ~11 crore in cash, apart from some laptops and storage devices, from one of the premises raided was put up before the media.

This makes one ask: They went for a ~50,000 crore mountain and they came up with these mice? Why would sophisticated algo traders be running around with cash if and when they were able to churn out billions of white money digitally? Is this then a ~11 crore co-location scam? Is it worth our time?

It is over two years now since the whistleblower’s letter first landed on the table of a middle-level Sebi official. For months it remained under wraps before MoneyLife magazine wrote about it. The NSE’s then chief executive, Chitra Ramkrishna, decided to take it to court, slapping a suit for damages on MoneyLife, and the rest is history.

Both the whole-time member and the chairman of Sebi who dealt with it first have now retired. The NSE itself has a very new leadership.

The two-year-old issue is not only a stumbling block in the bourse’s plan to make an initial public offering (IPO), it has dragged on far too long for the comfort of millions of investors and thousands of crores of wealth being traded on the exchange.

Coincidentally, even as these raids were being conducted, another central investigation agency had sought time before the Supreme Court to give its reply about allowing a former finance minister’s son, who is under its probe, to go abroad.

A portal known for its right-wing views and attacks on the opposition has written a series of articles on the colocation issue. It has put the alleged gains from the so-called scandal at thousands of crores of rupees. It has tried to connect the dots between the former finance minister, his son, and an academic purportedly close to them and the relatives of this academic working in the exchange.

It is very much possible that a formal complaint on these lines has been filed with the Income-Tax Department and other authorities, triggering the raids.

In the same series of articles, the portal has also been singing paeans about another exchange group that got into trouble a few years ago. All this makes one wonder if this is political vendetta or business rivalry at play. Add to it the camps and politics of retired bureaucrats, who are now crowding the exchange space, you have a deadly potion.

Surprisingly, the NSE, which had been very sensitive about media coverage in the past, has turned a blind eye to all these allegations floating on the internet. If at all there were any efforts to rebut, these are not public.

Neither Sebi nor any of the independent forensic auditors and consultants it engaged have been able to come up with any clear indication of whether the alleged unfair access gained by Sanjay Gupta of OPG Securities and others through the colocation system resulted in any significant financial gains. Recent reports EY and the ISB, engaged by the NSE, are said to have found no evidence of illegal profits or advantage in trading.

It would be interesting to see if the IT raids come up with evidence to the contrary.