Was an agreement between the Multi Commodity Exchange (MCX) and the Indira Gandhi Institute of Developmental Research (IGIDR) to share market data misused for ‘algo trading strategy’ in deviation of the stated objectives of the 2016 pact between the two?
A forensic audit of the MCX conducted by TR Chadha & Co says: “Prima facie indications are that the objective behind seeking trading-related data ‘seems more related to develop algo strategy’ than underlying deliverables as per agreement/undertaking.”
The draft audit report, a copy of which is in possession of BusinessLine , has been submitted to market regulator SEBI. The report states that the MCX, on instructions from Susan Thomas, researcher, IGIDR, also shared key data with one Anand Chirag, a Delhi-based designer of algo- trading software.
The audit report meticulously details what constituted sharing of ‘live data’ by exchange with researchers. It says the MCX gave out details of pending orders that were still valid up to a certain date at exchange level, actual order quantity, and display quantity along with quantity filled ‘today’, all of which reflect actual transactions done against orders on that date.
Further, the report states that “the researcher, by gaining access to ‘disclosed quantity’ and ‘actual quantity’ on a daily basis, is made aware of the actual quantity placed by the trader, which the trader did not want others to know as it would result in knowledge of sensitive data.”
Data demanded by the Delhi-based software designer included 22 fields regarding trade data, 24 fields of order data, 37 fields of bhav copy and 64 fields of master file data. The auditors have said that the MCX research team was directly in touch with the technology team to extract the required data without involving people from the operations and compliance departments.
“It seems ‘researchers’ want to gain access to data not available to other traders and not required to be available as per the order of the said trader,” the draft forensic audit says.
When the auditors asked Mrugank Paranjape, MD, MCX, as to why such data would be useful for research, he is quoted in the audit report as saying that “the operational aspect was completely monitored by the research department and they should be in a position to answer.”
Raadheshyam Yadav, from MCX’s IT Department, said: “Live data was never shared.”
Thomas’ reply to the auditor was, “Chirag’s inputs are required on this.”
V Shunmugam, researcher at MCX, said: “We believed in the capability of the IT team to advise us... the IT team being the guardian of data to be shared with the outside world.”
Chandresh Bhatt, also from IT Department, said: “Data was provided next day, and as such, is historical. I’m not aware if such data is confidential.”
MCX, Thomas, SEBI and TR Chadha did not respond to BusinessLine’ s emails on the subject.
The auditors also found an email dated June 6, 2016, sent by Thomas to Paranjape stating: “My sister Sunita Thomas runs a software company, which does work for a few securities firms, in algorithmic trading for the NSE/BSE. It would be useful for you to meet her and her partner (Krishna Dagli) and look for areas for cooperation.”
Paranjape told auditors he had forwarded the mail to the IT team and no transactions were done with Sunita or associated companies.