Mumbai: National Stock Exchange of India Ltd’s (NSE’s) vice-chairman Ravi Narain has resigned from the board, as markets regulator Securities and Exchange Board of India (Sebi) investigates allegations that some brokers gained unfair access to the bourse’s algorithmic trading platform when he was its chief executive officer (CEO).
Narain, 61, submitted his resignation on Thursday evening, said two people with direct knowledge of the matter. The exchange confirmed the development without providing details.
Narain “did not want the fact-finding exercise in the current probe by the regulator and the exchange to be hampered in any way”, one of the two said on condition of anonymity.
Sebi last month sent show-cause notices to 14 NSE officials, including Narain, who was serving as CEO and managing director (MD) at NSE during the period when the alleged violations took place, 2010-2014.
His is the second high-profile exit from NSE within a span of six months. On 2 December, Chitra Ramkrishna stepped down as CEO and MD of NSE. Ramkrishna was successor to Narain.
Narain is the last member of the founding team that set up NSE in 1992 to leave the exchange. Ramkrishna, too, was a member of the team.
Narain’s departure “is in line with the best corporate governance practices, to have an independent probe without conflict of interest”, said the second official cited above, a member of the board.
The market regulator had raised concerns that Narain remained on the board of the exchange, which was to examine the role of NSE officials in the unfair access allegations, parallel to the Sebi probe.
The exchange has formed a committee to look into the allegations and sought responses from the 14 NSE officials who received show-cause notices from Sebi.
The matter pertains to allegations by a whistleblower that certain brokers were able to log into NSE systems with better hardware specifications, allowing them unfair access and advantage. The issue was first highlighted by Sebi’s technical advisory committee, which recommended a probe against the exchange in April last year.
Following this, the regulator in September 2016 asked the exchange to conduct a forensic audit and deposit the revenues being generated out of the co-location facility in an escrow account.
NSE, in its share sale document on 28 December, disclosed that a forensic audit by Deloitte India showed that its algorithmic trading platform and co-location facility were “prone to manipulation” and allowed “potential preferential access” to some brokers.
“These are serious allegations of preferential access, and the responsibility of the exchange was not just towards its shareholders but also towards the market,” said Shriram Subramanian, founder and managing director at InGovern Research, a proxy advisory firm. “At the very first place, as a good governance measure the board should have held the then management, including Narain, responsible. The resignation should have been sought when the primarily findings by the regulator pointed at preferential access.”