The audit committee of Multi Commodity Exchange (MCX), at its meeting on Friday, is likely to take up the issue of the Exchange’s data sharing pact with the Indira Gandhi Institute of Development Research (IGIDR). BusinessLine had reported on November 26 that a 2016 pact between MCX and IGIDR was facing an internal probe for alleged abuse. The meeting is key as the committee will soon finalise its report to be sent to the regulator. According to sources, allegations of a "dedicated pipeline or lease line" are mainly under focus as there is no audit trail like providing data via hard disk. The audit committee, which mainly consists of MCX board members, was formed some time ago after SEBI told the exchange to examine the serious charges levelled by a whistle-blower. The same whistle-blower, whose allegations highlighted the massive algo trading scam at the National Stock Exchange (NSE), told SEBI that crucial data at MCX too was allegedly accessed. As of now the audit committee has decided to meet in Delhi, sources said.
Officials from MCX are of the view and have replied to the board that data from the bourse could not be misused as they do not provide co-location facility like NSE, the sources said. But regulatory officials say algo trading strategies, which mainly require highend data, can also be played without co-locating the server inside an exchange premises. “The MCX staff have become even smarter than NSE staff in leaving no audit trail. Even if there were a way to demonstrate the unfairness in access, MCX could walk away scot free saying it does not provide co-location hence it is not responsible to ensure fairness across firms,” the whistle-blower claimed in a letter to SEBI, a copy of which has been reviewed by BusinessLine .
The whistle blower letters further alleged that ‘dark fibre’ trading links that are used for speed trading are operating in a regulatory vacuum at commodity exchanges and in the absence of any norms the activity is more brazen. A Mumbai-based fibre network firm rejected by the NSE, was operating at the MCX. The firm provided differential speed access to different clients based on revenue share.
While commodity exchanges are not providing co-location facility, some brokers have placed their servers as close to the exchange property in Mumbai as possible. In co-location, brokers’ trading servers are placed inside on exchange premises or data centre.
MCX did not comment to an email query on its audit committee meeting. But in a reply to BSE on the issue it said, “No disclosure is required at this point of time. As and when disclosure is required, the company would be making the same in terms of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.”