The Market Mafia, unveils a scam possibly much bigger than Harshad Mehta
- Rommel Rodrigues
- Dec 09, 2020
Stories about major financial scams are quite a regular affair however only a few makes the headlines in India, especially the ones related to the capital markets.
Let’s face it, we are still enamored by the Harshad Mehta stock market scam even after 30 long years. We are now seeing a renewed interest in making biopics on Mehta and the financial scandal he perpetrated which was valued at 10 thousand cores rupees in 1992.
So when we get hold on this book by renowned financial journalist Palak Shah aptly titled The Market Mafia, we tend to believe that it underlines what most of us in the financial sector already know but were afraid to face.
However when we glean though the pages and read though the meticulously researched sequence of events so tightly edited into such a gripping narrative where we were compelled not to put the book down till we finished it, we realize that the scam he unveils could potentially run in several thousand core in values and should make big headlines.
The Market Mafia, traces deep nexus between India’s elite few in the power corridors, who with no fear of law, could hijack the regulations and stock market trading platform for nearly a decade, ‘steal vital data’ from two large stock exchanges to develop and back-test software and front-run the markets.
Quite early into the first one or two chapters Palak exposes the reality of events of the Colo Scam, with intricate details of the perpetrators and their nefarious intentions, with the collusion of regulatory and political big wigs including the then Chairman of SEBI C.B Bhave & erstwhile finance minister P. Chidambaram.
In his words Palak calls Bhave as the man at the helm of affairs of the premier market regulatory agency who acted as a blind-folded cop turning a blind eye to what was conspiring at the then very young National Stock Exchange (NSE) in 2008.
Palak hints of the involvement of former Bhave, in aiding and abetting a stock market scandal of massive proportions, by letting go the ‘cabal’ involving high profile stock exchange executives and insiders, country’s famous PhD scholars, powerful bureaucrats and their political patronage, who were all part of a high-tech stock market rigging operation.
Tracking the very genesis of NSE, the author gives a gripping tale of how a hand full of people at the exchange hand in glove with the two key protagonists got preferential treatment of co-location of trading servers in the Exchange's premises which allowed them faster access to the buy and sell orders being disseminated by the exchange's trading engine and eventually indulged in covert data theft.
At the helm of his story are Ajay Shah his wife, Susan Thomas their company CMIE and several of their partners. Since these select players obtained market related and price information ahead of the rest of the market, it enabled them to front run the rest of the market with use of specialized software, (again created by the protagonist) and thus fraudulently engaging in a scam which by any estimates would run in several hundred times bigger than the Harashad Mehta scam.
Palak explains in great details how the stolen data was also used to program into the High Frequency Trading (HFT) driven Algorithms (Algos) the computer assisted, rule based tech tools that deftly buy and sell stocks, which altered the high-octane equity trading game at NSE and eventually profiting the scamsters.
Palak elucidates Chidambaram’s conduit who has been accused of misusing his office during the United Progressive Alliance (UPA) rule from 2004 to 2014, when Ministry of Finance was under his leadership along with his close aide K.P. Krishnan, who had been the longest serving Joint Secretary and Additional Secretary for the capital market.
Palak caricatures Chidambaram in his book as, 'The lungi clad lawyer turned politician, a Harvard Business School graduate, a darling of Indian stock markets, especially the Foreign Institutional Iinvestors (FIIs),' and goes on to explain his role in the NSE colocation scam.
Up to the last sentence in this 238 page book, the author Shah provides the readers with cross references of verifiable documents, newspaper stories and evidence to de-construct one of the most complex stock market scandals in India.