Few stories are as surreal as this one. How does a renowned and feted CEO of a national stock exchange act in blatant contravention of securities guidelines and law for 3 years without the market regulator noticing? Even more curiously, how does the Board of this exchange not ring the alarm bells and, to the contrary, proceed to cover up the case by quietly retiring the CEO? The recent arrest of former CEO of the National Stock Exchange Chitra Ramakrishna and her alleged spiritual guide Anand Subramanian has blown the lid of an unsavoury but entirely surreal 3-year stint at the NSE, which in all probability cost tax payers thousands of crores.

WHO IS CHITRA RAMAKRISHNA?

Chitra Ramakrishna is a chartered accountant from India. She also holds a degree from the Chartered Institute of Management Accountants UK. The third woman to be appointed as head of an exchange in the Asia pacific region. She joint the National Stock Exchange (NSE) as Managing Director in 2009 and was promoted to CEO in 2013. Her tenure as CEO lasted till 2016. After that, she resigned from NSE as CEO citing “personal reasons”. To the contrary Rs. 23 crore in remuneration was given to her with a glowing send-off for the last 8 months of her tenure.

THE CASE

In 2013, the year Chitra Ramakrishna stepped in to her new role as CEO of NSE she appointed a person called Anand Subramanian to the role of Chief Strategy Officer. A post seemingly created for him. Mr Anand Subramanian was previously vice-president of a company called Transafe which had run into trouble over fraud charges during Mr. Subramanian’s tenure. The CEO of Transafe Mr. JK Mukherjee was arrested in 2010 over allegations of inflating income to show a higher profit. Mr Anand Subramanian stayed with the firm as VP through this period till his joining of NSE in 2013. Trasafe was sold last year.

RED HERRINGS WITH THIS APPOINTMENT

Considering the companies trading on NSE would perhaps be 1.5 times India’s GDP, every high-level appointment is required to declared as Key Managerial Personnel (KMP). These positions are subject to strict documentation and are looked at by audit teams. Reportedly, no HR record of NSE shows Mr. Balasubramanian’s onboard process, interview rounds, any advertising for this position, no other applicants, and interviews, let alone rejections. The CEO was the interviewer, and she did not establish a formal hiring process. There was no documentation, and Ms. Chitra Ramakrishna maintains she hired him as a consultant and not an employee. Mr. Anand Subramanian has no previous experience in this industry.

The unprecedented salary increment that Mr. Subramanian received could well be the only one of its kind ever seen in any hiring or promotion process. From a salary of rupees 15 lakhs in Transafe, a Crore plus salary was an unprecedented jump, especially since he had no prior work experience working at a stock exchange. Several whistle-blowers cropped up, and complaints were sent to the SEBI of Mr. Subramanian being appointed without a KMP declaration, of various perks afforded to him and his seemingly preferential treatment by the CEO

BEATING THE ALGORITHM

Primarily, the whistle blowers within NSE drew SEBI’s attention to the preferential treatment given to Mr Subramanian, his quick elevation within the NSE and the power he seemed to wield. Heart of the hells of this inquiry came the “co-locators scam” also known as the “Algo Scam”.

Briefly, co-locators facilitate more space and power for quicker trading, with less faults and delay. Since trading is high frequency and high-volume milliseconds could matter. However, the co-locator centres discovered some loopholes. Since co-locators work on a first come first serve basis, some traders realised that all the co-locators were not switched on simultaneously. They made use of this information by trading faster and made more of a profit by identifying which of the co-locators were switched on first. In addition, these traders got further information from within the NSE that the load was not evenly distributed over these co-locators. If the co-locator with the lesser load could be identified trade would again be faster and a larger profit. The exchange tried to fix this by putting in co-locator load balancer technology. However, the already existing backup servers which were to be used in case of a breakdown started getting used with inside help to circumvent the co-locator load balancing technology check.

The co-locator scam lasted several years. Whistle blowers allege that billions of rupees were involved in this misappropriation between 2010 and 2015. A particular whistle blowers 4th letter to the SEBI alleges rigging of currency market and manipulation of NSE. This when management of NSE were questioned by SEBI. The investigation showed that the NSE computers were compromised, leading to management change.

During this investigation, Ms. Chitra Ramakrishna’s email correspondence with a Himalayan yogi came to light. An email address rigyajursama@outlook.com which allegedly belonged to a yogi or a baba was in regular correspondence with the CEO of the NSE. Within these mails Ms. Ramakrishna shared sensitive information with the Yogi about stock exchanges, financial projections, dividend pay off ratios, business plan agendas of board meeting, consultation overrating and performance appraisals. Mr. Subramanian was a part of these exchanges. With the resignation of Ms. Chitra Ramakrishna and Mr. Anand Subramanian this seemed to die down in 2016. The records show the CEO’s reasons for resignation as “personal reasons” despite NSE’s knowledge of her misconduct. She was sent off with a glorious farewell along with a cash remuneration of 23 crore for the last 8 months of her tenure. In 2018 the CBI got fresh evidence and on orders from the courts filed an FIRs in the co-locator scam, against several stock brokers who has manipulated the system.

THE “MATERIAL YOGI”

It is to be noted here that during the SEBI investigation of the co-locator scam the SEBI was only concerned with manipulating the system by the brokers. However, SEBI and the CBI were acting on the breach of confidentiality by Ms Ramakrishna. Several facts came to light. the first being the “Kanchan” referred to by the yogi in his emails to Ms. Ramakrishna was none other than Anand Subramanian. The mysterious Yogi was instrumental in Mr. Subramanian ‘s appointment with NSE. The board of directors were aware of this exchange and sharing of sensitive information with the Yogi and in spite of this knowledge, the board of directors took no action and allowed her to resign.

SEBI fined NSE with RS 20 million and barred the exchange from launching any new product for 6 months. A fine of Rs. 3 crore was slapped on Chitra Ramakrishna with a ban from associating with any market institution or intermediary registered with the SEBI. Rs 2 crores on Anand Subramanian with a ban from associating with a marker institution or an intermediary registered with SEBI. The former MD and CEO Ravi Narain was fined Rs 2 crores with a ban from associating with a market institution or an intermediary registered with SEBI for 2 years. R Narasimha the chief regulatory and compliance officer was fined Rs 6 lakhs. The CBI issued a look out notice over all involved in the co-locator scam. The income tax department raided both Ms. Ramakrisha and Mr. Subramanian residences for evidence of tax evasion and other financial irregularities.

It has only recently come to light as claimed by the CBI that the Yogi with the email address was none other than Anand Subramanian. Recent investigation and rigorous questioning of both persons by the CBI resulted in the arrest of Anand Subramanian and later Chitra Ramakrishna. Only time will tell whether members of the then Board of NSE and even possibly employees of SEBI were involved in this scam.

LESSONS LEARNT

This scam was possible due to multiple failures of process and policy as well as flaws and gaps within NSE, at SEBI and in the law respectively. The abject failure or non-existence of appropriate management and operational structures at NSE allowed for the smoot insertion of malignant actors like Anand Subramanian. As a sensitive Market Infrastructure Institution (MIIs), KMP positions at the NSE should have been regularly rotated to prevent the growth of entrenched interests as previously suggested by former SEBI Chairman M Damodaran. It will also be essential to strengthen further the enforcement ability and function of SEBI which took an excessive amount of time to look at the complaints against NSE.

Finally, the lack of a defined whistle-blower policy surely contributed to the continuing blatant acts of the accused during their tenure at NSE. It is time that the Government enact amendments to the (yet to be operationalised) Whistle-blowers Protection Act 2014 to allow for anonymized whistleblowing.

The Curious Case of Chitra Ramakrishna - Former CEO of NSE and the Himalayan Yogi

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ABOUT AUTHORS

ANJALI DATTA