Grabbing the bull by the horn

Even as the latest book "Absolute Power: Inside story of the National Stock Exchanges amazing success, leading to hubris, regulatory capture and algo scam", co-authored with her husband Debashis Basu, which was launched in June has gone into a second print with online sales only, it makes all the sense to start the conversation with investigative journalist and author Sucheta Dalal -- with Harshad Mehta. Not just because she wrote "The Scam: From Harshad Mehta to Ketan Parekh" (also co-authored by Basu), but also broke the story for a leading newspaper on the broker who even after his death is revered by some as the 'Dark Prince' of Dalal Street.

"I guess there is nothing surprising about it. People who made easy money wanted the happy days to continue. We also have such a high level of corruption in India that it ought to be no surprise that many people with that mindset, who are completely okay with giving and accepting bribes, and flouting the rules, should see him as a hero and want price ramping to continue to give them easy money," says Dalal who was conferred the Padma Shri for journalism in 2006.

Her book was adapted into 'Scam 1992', a web series.

In the latest book, the authors take a hard look at the changes in capital market regulation and infrastructure after the Harshad Mehta scam -- one of which was setting up the National Stock Exchange as a cleaner alternative to the century-old, scam and faction-ridden BSE. However, the NSE itself got embroiled in the algo scam originating in the exchange's sanctorum: the co-location servers for high frequency trading. Talk to her about the decline of the NSE, a great model for a decade after its establishment and she stresses that though there is no operational decline considering its doing quite well, it just cannot be seen as a role model. She feels that it is regulatory capture that made it so profitable, and arrogance that led to the algo scam.

"NSE built deep connections with the bureaucracy and political establishment and used its extraordinary profitability to silence all criticism. This put it above any serious regulatory action and criticism. Its board of directors, though eminent personalities, were always happy to endorse its long series of questionable practices."

Adding that as the third largest exchange in the world and a phenomenal success at setting up a professional exchange in its first decade, it managed to sell the idea that nobody should do anything to NSE because it would hurt the market and investors, Dalal says: "Another important factor to remember is that NSE has used its money power to fight all disclosure and scrutiny. It refused to submit to the Right to Information Act despite an order of the Central Information Commission and a single judge bench of the Delhi High Court. It has gone into appeal and is dragging the matter. It has also successfully avoided listing, while the top management has given itself globally-benchmarked salaries (endorsed by the board of directors). This concentrates power. The Finance Ministry and the regulator have done nothing to change this status quo, which means that a real clean up is impossible. For starters, the finance ministry can simply issue an order asking all national exchanges to submit to the RTI Act. This will throw light on all exchanges and ensure that investors, activists and the public keep an eye on all where government agencies seem incapable of doing so."

Ask her how many ordinary stock market investors do not even know about 'Big Boys Club', and the author feels that we have moved to a situation where the big boys' do their own algo trading and small retail investors who have flocked to the exchange are trading in completely unregulated algo.

"This is dangerous because it will unleash mayhem if there is a sudden crash. But SEBI seems unwilling to order the regulation and scrutiny of algo or have an urgent and open discussion on it. With 1.5 crore new investors in the market since March 2020, our investor population, which was stagnant for over two decades will soon double. We need to prepare for eventualities but there is no sense of urgency on SEBI's part. It has absolutely no engagement with retail investors, NGOs or even those who are writing retail algos and warning about its dangers," says Dalal, who also broke the Enron scam, the Industrial Development Bank of India scam, the Ketan Parekh scam in 2001.

She feels that unless the regulator is alert and does not treat some entities as holy cows, we will always have a new scam.

"Remember, scamsters are usually smarter, more daring and one jump ahead of the regulator. Hence it is imperative that the regulator does not operate out of an ivory tower and is subject to direct, televised oversight by parliament. But the capture of all regulatory posts at independent regulators by the IAS ensures that this will never happen unless there is a serious problem. The 1992 scam was a trigger for extensive regulatory changes. It will be a pity if we wait for another one before we do what is right."

Talk to her about SEBI commissioning ISB Hyderabad to quantify the illegal profits made by certain brokers who logged in first, and she says that SEBI and especially its Technical Advisory Committee commissioned at least seven investigations and many are continuing.

"I am completely unclear how and why ISB Hyderabad was selected or considered competent to handle this, especially since it has been the beneficiary of NSE funding. It is also important to ask why there is no report for over six years and when it will be placed in the public domain."

Looking back at the days when she broke the Harshad Mehta story that catapulted her to immense fame, Dalal recalls that it was an exciting time as the scam was not merely about Harshad Mehta, but the entire banking system being enmeshed in dirty dealings and flouting the law with impunity. And are news outlets as much invested in long term investigations as they were when she broke the Harshad Mehta story?

"It is hard to say about mainstream media most of them practice what I call vulture journalism -- remaining silent while a scamster is flying high and then doing breathless daily reporting after a person is caught as they did with Nirav Modi, Vijay Mallya and many others. However many small media outlets, independent media and even individual bloggers are doing brilliant work and it also gets noticed and circulated due to social media. So all is not lost for investigative journalism."

With many new scams that need to be put together, she is currently working on another book. "But let it remain under the wraps for the moment."