First, some quick background

The National Stock Exchange: Back in 1992—after the Bombay Stock Exchange was rocked by the Harshad Mehta scandal (explained here)—the government was keen to set up a cleaner, more reputable competitor. It was the first exchange in India to provide modern, fully automated electronic trading—and promised transparent trading. It is now one of the largest in the world, and best known for its Nifty 50 Index.

Chitra Ramkrishna: was one of the five people handpicked to set up NSE from scratch—and 20 years later she became its CEO. She was Forbes woman leader of the year in 2013—and was praised for her “conservative, professional approach.” Here’s a bit from the gushing Forbes’ profile that sums up her past reputation:

“Inside NSE, she is known as tough and single-minded. She fosters team spirit and maintains a healthy balance between control and freedom. More importantly, she sees to it that performance is rewarded. NSE insiders say she is a visionary and knows what needs to be done over a period of time so that energy levels at the exchange are maintained.”

Key number to note: Ramkrishna made a whopping Rs 44 crore in little over three years as NSE’s CEO. She resigned citing “personal reasons” in 2016.

The NSE school of scandal

Electronic trading was supposed to ensure transparency, but it instead enabled a massive ‘Co-location scam.’ In 2015, a whistleblower shared explosive details of fraud within the NSE with the Securities and Exchange Board of India (SEBI) and journalist Sucheta Dalal. Here’s how it worked:

• NSE officials, brokers and the company in charge of the tech apparatus allegedly colluded to give some traders preferential treatment.
• Between 2011 and 2014, a handful of brokers secured preferential access to NSE’s trading servers—via its colocation facilities. This is where a trader’s servers are placed in the stock exchange’s data centre—for a steep price.
• The closer you are to the NSE’s data centre, the faster you can access the buy/sell quotes. That slight time advantage can prove hugely profitable with high frequency trades.
• But what made it worse—and illegal—was the misuse of the Tick-By-Tick System. 
• A “tick” is a packet of data regarding buy/sell orders, cancelled or modified orders, or trades that have taken place. Brokers who had early access to this information had a massive advantage. 
• The way to get that advantage: access NSE servers with the least load—information that only NSE insiders possessed.
• According to the allegations, some brokers were able to log in to several servers through several IPs assigned to them. This also allowed them to log in more than once, crowding out others.
• Sounds a little technical? Look at this way: According to tax officials, these traders made gains to the tune of $6.61 billion  (Rs. 50,000 crore) thanks to those milli-seconds of extra speed.

The consequences: were surprisingly mild. In 2019, SEBI slapped a massive Rs 1,100 crore fine on the NSE—which is still being challenged. And yet SEBI recently approved the exchange’s plans to launch an IPO. Smaller fines have been slapped on brokers and on former MDs Chitra Ramkrishna and Ravi Narain—who were asked to pay Rs 25 lakh each. 

Most importantly: Despite years of investigation, SEBI has failed to “establish fraud, collusion or even to quantify illegal profiteering.” In fact, SEBI claims there is no evidence “leading to the culpability of any specific employee of NSE [or] the collusion or connivance from the side of NSE with any specific trading member.”

Enter, the overpaid executive

The latest brouhaha has nothing to do with the previous scam, but focuses on the appointment of Anand (aka Kanchan) Subramanian as NSE’s group operating officer. This bizarre drama was unearthed while investigating the colocation scam. 

Anand Subramanian: 

• In 2013, Subramanian was a middle management executive—with zero knowledge of markets—making less than Rs 15 lakh per year. 
• That’s until Ramkrishna took on her new job as CEO/MD—and hired him on her very first day as a “strategic advisor”—at an annual salary of Rs 1.68 crore. HR was not consulted and the job was never advertised.
• Key point to note: Subramanian and Ramkrishna already knew each other at the time—and she was exchanging confidential and “very personal” emails with him.
• His compensation increased to Rs 2.01 crore in 2014, Rs 3.33 crore in 2015—and skyrocketed to Rs 4.21 crore in 2016. 
• By then he had taken on a great share of Ramkrishna’s responsibilities and had been promoted to COO.
• He finally left NSE in 2016—just ahead of Ramkrishna’s resignation.

A see-no-evil board: In its recent order slapping a penalty of Rs 3 crore on Ramkrishna, SEBI also took the NSE board to task. The board discussed the “irregular” appointment of Subramanian—and his arbitrary raises—but never recorded them in its minutes. And despite its knowledge, the board permitted Ramkrishna to resign instead of firing her. The board’s defence:

“After finding blatant bypassing of rules in appointment of Subramanian, he was sacked. The board was in the process of sacking Ramkrishna owing to irregularities pertaining to Subramanian when she offered to resign. Considering her years of service, the board in its wisdom thought allowing her to exit gracefully was a better option.”

But, but, but: At the time of her exit, a board member claimed that every attempt was made to retain her. At the time, its public interest directors (appointed to ensure integrity) were former finance secretary Ashok Chawla, noted businessman Mohandas Pai, and former SEBI executive director Dharmishta Raval. This may explain why Pai is denying the entire story as fake news these days.

Enter, the great Himalayan yogi

The SEBI-ordered investigation into NSE was conducted by E&Y whose audit uncovered a trove of email correspondence between Ramkrishna and an ID called rigyajursama@outlook.com. When asked about him—who she calls ‘Siromani’—Ramkrishna claimed that she had met this yogi on the banks of the Ganga 20 years ago:

“Subsequently, over the years I have taken his guidance on many personal and professional matters. Along the way, since He would manifest at will and I did not have any locational coordinates I requested Him for a way in which I could seek His guidance whenever I felt the need. Accordingly, He gave me an id on which I could send my requests.”

So she was being guided by him when she started the NSE—and all the way through her tenure there. FYI, the board knew about her relationship with this man, as well—and also kept that information out of the board minutes.

Here’s what we know so far about this mysterious man:

The know-it-all yogi: Ramkrishna shared all confidential information with him—including financials and HR. He knew NSE staff members by name and gave detailed directions on who to promote to what position. Subramanian—whom yogi-ji calls ‘Kanchan’—was appointed as per his directions—which also dictated his insane pay raises. All of which led SEBI to conclude that the three of them had colluded in a money making scheme. 

FYI: the good yogi was equally helpful in matters of style: “Today you are looking Awesome. You must learn different ways to plait your hair which will make your looks interesting and appealing!!”

The holidaying yogi: Ramkrishna insists the yogi is a “siddha-purusha” who did not have a physical persona and could materialise at his will. Yet, the emails show him cheerfully making plans with her to “enjoy a sea bath in Seychelles”—leading the SEBI to sarcastically observe:

"Without unnecessarily going into the details of each email, it is evident that the unknown person is a physical being and has gone on vacations with the Noticee no. 1 (Ramkrishna) to ‘chill’.”

A doppelganger yogi? The E&Y audit concluded that Anand Subramanian (the overpaid GOO) and the yogi are the same person—a convenient explanation that NSE used to make this brazen argument to the SEBI: 

“The confidential information of NSE were not disclosed to an unknown entity, but to the Group Operating Officer (GOO), who anyways had access to financial, operational and HR related information about NSE. Further, NSE confirmed that no damage to the market was caused in any manner due to such correspondence and that Ms. Ramkrishna confirmed that the third party had not used confidential information for any personal or monetary gain.”

But SEBI doesn’t appear to be convinced—and will only concede that Subramanian and this yogi likely enjoyed a close relationship, as well.

Point to note: SEBI has not identified the yogi because it can’t trace the IP address of his emails. The reason: laptops belonging to Ramkrishna and Subramanian were disposed off as e-waste by NSE.

Ramkrishna’s defence: When pushed on her highly unprofessional behaviour, she said:

“As we know, senior leaders often seek informal counsel from coaches, mentors or other seniors in this industry which are all purely informal in nature. In a similar strain I felt that this guidance would help me perform my role better. Being spiritual in nature there would never be a question of any confidentiality or integrity issues being compromised for the organisation. There would be no question of any personal gain because of the information shared.”

The bottomline: So let’s review: Our biggest stock exchange was run by a delusional CEO, an unqualified GOO and a complicit board—and SEBI did its best to look the other way until it became impossible to do so. How are you feeling about your investments today?

Reading list

Hindu Business Line, The Quint and Mint have the most details on the latest SEBI order on Subramanian. MoneyLife has screenshots of the actual order. MoneyLife is also very good on the colocation scam—and SEBI’s abysmal record. Also: here’s an easy-to-understand explainer on the scam.