Three central entities in the colocation scam at the National Stock Exchange (NSE) that has shaken the foundation of the Indian capital market recently have been on different trajectories since it all unraveled for each of them over the past few years.
The Securities and Exchange Board of India’s (SEBI) investigations into misuse of the colocation facility of the NSE between 2010 and 2015 and other corporate governance lapses at the stock exchange around the same period unveiled Infotech Financials, Omnesys Technologies and OPG Securities as three companies who had misused their connections to the stock exchange to make unlawful financial gains.
OPG Securities Private Limited was one of the central entities in the colocation scam with the broker found to have illegally used the colocation servers of the NSE for faster access to market data that allowed it to make millions in profit.
SEBI’s order in 2019 said OPG Securities gained unfair advantage over other trading members and made illegal gains being the first logger as well as by connecting to a secondary server on a daily basis.
SEBI had banned the company and its directors from the securities market for three years and imposed penalty of Rs 15 crore. However, the Securities Appellate Tribunal (SAT) stayed SEBI’s order but asked the stock broker to deposit Rs 7.5 crore in an escrow account.
Infotech Financials, a company lead by Ajay Shah’s sister-in-law Sunita Thomas, was found by SEBI in April 2019 to have intentionally misused NSE data for the creation of India VIX and a Liquidity index for developing proprietary algorithm trading software for commercial purpose.
Ajay Shah, who was part of NSE subsidiaries National Securities Clearing Corp and India Index Services and Product, in a mail to Sunita Thomas was quoted by SEBI order as saying: “...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.”
SEBI had barred Infotech Financials from offering services to any SEBI registered entity for two years. The company had appealed for a stay on the order to SAT but a final verdict is still pending.
Omnesys Technologies, too, misused its preferential access to the NSE data to design managed data service for clients that basically were front-running prices on the stock exchange. Omnesys guaranteed a profit on every trade to clients, according to book Absolute Power, authored by Sucheta Dalal and Debasish Basu.
Of the three entities, Omnesys Tech has suffered the biggest blow with the company currently undergoing liquidation likely because it lost its competitive advantage after the NSE corrected the lapses in its tick-by-tick system following SEBI investigations launched after a whistleblower complaint in 2015.
OPG Securities has been dealt a body blow ever since the SEBI order but has still managed to survive. Despite potentially losing its upper hand on other trading members that it enjoyed for a good part of the first half of 2010s, the stock broker is still actively doing business in the capital market, as a peek at its website suggested.
That said, OPG Securities’ revenues nosedived 42 percent to Rs 28.1 crore in 2019-20, the year of the SEBI order against the company, while it reported a net loss of Rs 9.4 crore, as per the latest statutory filings of the company accessed by Moneycontrol. The fall from grace for the company is staggering given that in 2014-15, right before the NSE scam came to light, OPG Securities reported a net profit of Rs 7.8 crore in 2014-15.
Infotech Financials Private Limited’s fate, curiously, has not been as disastrous as Omnesys and OPG Securities. The financial service provider has seen its revenues grow 71.5 percent to Rs 1.75 crore in the financial year ended March 31, 2021 in what looks like a turnaround year for the company. The company also reported a net profit of Rs 84 lakh as against a net loss of Rs 25 lakh in the previous financial year.
Queries sent to Infotech Financials and OPG Securities remained unanswered at the time of publishing. Moneycontrol will update the report as and when both the companies respond.
Prior to 2020-21, Infotech Financials’ performance was on a declining trend largely because of steps taken by NSE to correct the improper use of its data by the company for the design of its proprietary algorithm trading software.
With the colocation scam again in the limelight following recent orders against former NSE managing director and chief executive Chitra Ramakrishna and others, the start to the new decade could be starker for these three companies compared to the previous ones.