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Last Updated : May 02, 2019 04:13 PM IST | Source:

Ajay Shah, relative, 'fraudulently misused' confidential NSE data: SEBI

SEBI’s initial investigation report found that NSE had overlooked its subsidiary IISL, which did similar work.

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Noted academician Ajay Shah connived with software services firm Infotech Financial Services to fraudulently use confidential data of the National Stock Exchange for developing and selling algo trading software, market regulator SEBI said in one of its orders in the NSE co-location case.

At present, Shah is professor at National Institute of Public Finance and Policy. He and his wife Susan Thomas have been associated with NSE and its affiliate companies since 1994 and are credited with developing the Nifty 50 index.

In 2009-10, NSE had engaged the services of Infotech Financial for computing of Liquidity Index (LIX). Infotech Financial is in the business of developing algorithm software for stock brokers.


Sunita Thomas, a director in Infotech Financial Services, is the sister of Shah's wife Susan Thomas. Sunita's husband Suprabhat Lala is an assistant vice president overseeing trading operations at NSE.

SEBI's initial investigation report found that NSE had overlooked its subsidiary IISL, which did similar work. Also, Shah, who was on the board of National Securities Clearing Corporation, did not disclose the potential conflict of interest by way of his relation to Sunita Thomas.

The report also observed that Ajay Shah, his sister-in-law and another director, with active support of NSE and its senior officials, misused the confidential  and  sensitive  data  provided  by  NSE  to be used  in the  LIX  project, to  develop algorithmic trading software for sale in the securities market. Following is an excerpt from an e-mail written by Shah to his sister-in-law.

"..on  day  1  Anupam  is  a  finance  guy.  He is  not  a  programmer.  So drive  him appropriately.  He  can  go  into  all  your  existing  projects-but  in  a  domain  knowledge  role e.g.  he  can start  working  on  trading  strategies  which  can  go  into  all  algorithm  trading work. (But you have to swear everyone to silence on the fact that the data that we are getting out of NSE for VIX and LIX is being used for algorithmic trading work -it would be a severe problem if this fact comes to light since NSE has not given anyone else this data.)"

In the final order, SEBI whole time member SK Mohanty said: "This   single  piece   of   evidence (e-mail)   speaks   volumes   about   the   collusive involvement of  Noticee  no.  1 (Ajay Shah)  with  other  Noticees  and leaves  no  doubt  about  the  fact  that  the aforementioned  four  Noticees  were  using  the  NSE  trade  data  together  for  the  development  of algorithmic trading products with a commercial motive and not for the purpose for which the data was shared with them by NSE under the LIX project."

Mohanty said that Shah was instrumental in giving the LIX project to Infotech Financial and that he and his wife, Susan Thomas were working pro-bono on the said project.

"Curiously enough, NSE and its officials ignored the inter se family relations and  also  overlooked  the  issues  of  conflict  of interest  arising  out  of  such relationships," the SEBI order said.

Shah has been directed by SEBI 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  recognised  by SEBI, for two years.

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First Published on May 2, 2019 03:59 pm
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