NSE scam: SEBI order raises more questions

Since the tenure of Ravi Narain as MD, and continuing with Chitra Ramkrishna, hubris has been the downfall of corporate governance at NSE. Financial success and near-monopoly meant NSE did not bother about the basics of corporate governance, and, at times, even cocking a snook at the regulators.

Read also: How Ravi Narain built the NSE, and then lost his grip

Though SEBI began investigations in 2016, it has taken six years to arrive at this order. However, SEBI’s order raises more questions than it answers.

From the SEBI order it is clear that everyone--the Board, the shareholders, the executive team members--at NSE was sleeping at the wheel and there were external influences, of a purported yogi, which were driving many of key decisions taken by the MD and confidential information was being shared with someone outside of the exchange. Even E &Y, in its forensic reports and upon examination of the matter has concluded that the yogi was none other than Anand Subramanian himself. That SEBI could not get into the identity of the yogi is a travesty. In the order, it looks like SEBI officials have created the metaverse for NSE.

If SEBI lacked the capability or capacity to take the investigation further, it should have sought the assistance of other investigating agencies. The mysterious yogi seems to be someone who closely knew the inside workings of NSE but also was very well networked in political and bureaucratic circles.

Surprising response

It is surprising that the Board of NSE let Chitra Subramanian and other key executives to just resign from the company. However, SEBI, has rightly concluded that resignation of Chitra Subramanian by itself does not provide impunity from being proceeded against under the securities laws.

The SEBI order itself seems incomplete and there seems to be something more than what meets the eye. This could require further investigation by other agencies, and the FinMin and the Prime Minister’s Office needs to act expeditiously. The investigations seem incomplete as to the connection of the appointment of Anand Subramanian with the colocation scam at NSE. The larger question is that why has the finance ministry and SEBI taken so long to investigate and arrived at what essentially is an ineffective and inconclusive SEBI order.

Read also: Latest revelations cast a shadow over NSE's listing plans

The National Stock Exchange, as a key market infrastructure, was compromised. The integrity of Indian capital markets was compromised. And, possibility a national security issue too. As the order itself notes: “any impact to stock exchanges….….bigger cataclysmic collapses that may result in an overall economic downfall that could potentially extend beyond the boundaries of the securities market and the country.”

The questions that remain unanswered are:

*How is the appointment of Anand Subramanian related to the co-location scam where an external whistle-blower was the first to flag the scam?

*How could the COO have been appointed without the Nomination and Remuneration Committee (NRC) knowing the candidate's past?

*Why did none of the CXOs raise the issue of the COO-MD nexus as a whistle-blower?

*What was the identity of the yogi or external influencer?

*Are processes and practices currently in place at NSE so that such an event doesn’t re-occur at such an important market infrastructure?

*The SEBI order has done more damage to its own credibility and many questions have remained unanswered.

(The author is the founder and MD of InGovern Research, a corporate governance advisory firm.)