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MUMBAI : The Securities and Exchange Board of India (Sebi) on Thursday imposed a penalty of 11 crores on Ajay Shah, National Stock Exchange, Ravi Narain, Chitra Ramakrishna and four others in a case of misuse of exchange data for commercial gains.

The misuse of exchange data is another offset of the so-called colocation probe, where some brokers got preferential access to NSE trading systems over the broader market. The first order in the governance lapse and misuse of exchange data was passed in April 2019.

The other entities penalised include Infotech Financial Services Ltd, Suprabhat Lala , Sunita Thomas, Krishna Dagli.

Sebi in its 82-page penalty order alleged Shah a senior academic, along with his sister-in-law (Sunita Thomas), misused market data obtained from the NSE for commercial gains.

As per the Sebi order Ajay Shah, Thomas, and Suprabhat Lala (assistant vice-president, NSE), conspired to satisfy their commercial ambitions by fraudulently exploiting the data received from NSE to construct an algo trading programme.

Market participants who wanted to trade securities were sold this trading software. Some of these purportedly were utilised by businesses to get unfair access to NSE’s systems, Sebi said.

While Sebi could quantify the gains made by these entities it said this had a huge impact on the market.

“One cannot lose sight of the fact that such an act on the part of the Noticees had a huge impact on the market. Ajay Shah and Infotech along with its directors made unfair gains by preparing software related to algorithmic trading at the cost of other investors who did not have access to such softwares developed on the basis of confidential data shares by NSE".

The misuse of exchange data is case where NSE engaged services of Infotech for computing of a Liquidity Index (known as LIX) back in 2009-10.

“Infotech is a profit-making financial technology firm engaged in providing trading software products in the securities market and in the past, has been associated with the projects of NSE through IGIDR," Sebi stated. The trading data obtained by Infotech from NSE for research on the LIX project was being misused to create algorithm trading products, according to a Sebi order.

Sunita Thomas , was the director of Infotech and wife of Suprabhat Lala . She is the sister-in-law of Ajay Shah. While on the other hand Lala was the Assistant Vice President, Trading Operations of NSE. Krishna Dagli too was a director of Infotech along with Thomas. Sebi thus established that all of them were family relatives.

“Ajay Shah, Infotech, Sunita Thomas and Krishna Dagli (the other director of Infotech) and Mr. Suprabhat Lala, as revealed from various other evidences, it has been alleged that these persons, with active support of NSE and its officials (Chitra Ramakrishna and Ravi Narain), have misused the confidential and sensitive data provided by NSE for the LIX project, for developing algorithmic trading software for sale in the securities market, thereby compromising the integrity of securities market.", Sebi said.

In terms of Ramakrishna and Narain the regulator said that the duo failed to do due diligence to ensure ‘fairness and transparency’ while awarding the contract to Infotech, as Infotech was itself in the business of developing and selling of algorithmic software to market participants for dealing in securities market.

Ajay Shah and his wife Susan Thomas, were associated with important assignments from NSE, such as development of NIFTY Index in the year 1996, building of PRISM (Parallel Risk Management), setting up of Clearing Corporation, setting up of NSDL, Designing Mumbai Interbank Offer Rate (NSE MIBOR) in 1998, and launch of Derivatives trading etc.

Shah and Thomas had received sitting fees for attending committee meetings, professional fees for conducting training, workshops, research projects, etc. from NSE and its affiliate companies.

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