NSE co-location case: 13 more trading members under SEBI scanner

PALAK SHAH | | Updated on: Apr 07, 2019
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SEBI has ordered investigation and forensic audit of 13 more trading members of the National Stock Exchange linked to the co-location scam at exchange. This is in addition to the ongoing probe against nine other trading members initiated by the market regulator earlier.

“The investigation / examination by SEBI / NSE are in progress and appropriate proceedings would be initiated upon completion of this. In addition to nine trading members, since forensic auditors indicated that there were other trading members who had also connected to ‘secondary server’, SEBI has commenced separate comprehensive investigation / forensic audit of 13 additional trading members for having substantial ‘secondary server’ connects to ascertain any specific violation on account of such connection,” SEBI said in a recent communication to the Finance Ministry.

In this letter, seen by BusinessLine , SEBI has also told the Ministry that it has put on hold 19 applications for settlement of the case following directions from the Madras High Court, which had asked the regulator not to process or pass orders under the consent application submitted by the NSE.

Under SEBI’s consent settlement, wrong doers can get away by paying penalty without admission or denial of guilt. SEBI has show caused 14 NSE officials. While 13 filed for consent, one former technology official contested the allegations as he said he had joined the exchange only after the alleged scam happened. Co-location was first highlighted by a whistle-blower in 2015.

SEBI’s letter to the Ministry also says that it has asked “NSE to carry out detailed examination, initiate action and submit a report in a time bound manner with respect to remaining trading members who had any connection to the secondary server.

As per NSE circular, secondary server was to be used only when a primary server is not available. SEBI’s technical advisory committee and forensic audit by Deloitte said brokers could get advantage in connecting to NSE’s secondary servers as exchange had no ‘load balancers’ and ‘randomisers’ in its systems architecture. The committee also said NSE’s architecture with respect to dissemination of Tick-by-Tick was prone to manipulation/abuse.

A legal expert involved with the matter said there were complaints against 60 odd trading members for logging to NSE’s restricted ‘secondary server’ and more brokers could come under scanner. Business Line had reported on March 28 that SEBI had finished its hearing in the co-location matter against those who were issued a show cause notice including NSE officials.

SEBI has told the Ministry that it has so far took taken action against three trading members and issued administrative warning to six in the matter. An email query sent to SEBI and NSE on April 6 remained unanswered.

Published on April 07, 2019

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