SEBI pins co-location scam on Delhi brokerage

PALAK SHAH Mumbai | Updated on July 31, 2018

Markets regulator issues show-cause notice to current and former executives at the NSE

Markets regulator SEBI has nailed Delhi-based broker OPG Securities for securing unfair access to the National Stock Exchange’s co-location facility. SEBI said the preferential treatment resulting in OPG’s unfair access could not have been possible without the active connivance of staff at the bourse.

In show-cause notices issued to brokers, and the NSE’s current and former employees, on July 3, the markets regulator gave details of how OPG got preferential access to trading systems, and managed to dictate terms at the exchange under former bosses Ravi Narain and Chitra Ramakrishna.

The show-cause notice, accessed by BusinessLine, also highlights how another firm, Sampark Infotainment, which later handed over its infrastructure at the NSE to Reliance Communications, manipulated the ‘Dark Fiber’ connectivity at the NSE.

While Narain and Ramakrishna both claimed ignorance and pointed fingers at the technology team, SEBI confronted the duo with emails to show that OPG and Sampark were favoured during their tenure, documents available with BusinessLine show.

“It is alleged that OPG had designed the software in such a way that the OPG could manage to connect first on the servers and gain advantage (sic),” SEBI observed. “Further, it is alleged that such preferential treatment resulting in unfair access cannot be possible without [the] active connivance of NSE employees.”

SEBI added: “Further, the system weakness and the laxity in supervision [,] whereby basic checks and balances such [as] load balancer and randomiser were not installed [,] facilitated the unfair access and collusive practices. The manner in which OPG was consistently gaining early login access day after day on select servers, it is alleged that could have been possible only with active connivance of NSE officials and OPG (sic).”

SEBI has found that directors at OPG sent emails to NSE employees claiming they had discussed its future roll-outs with Narain.

In the case of Sampark, SEBI found that the NSE facilitated a takeover arrangement of the IT vendor by RCom to give post-facto legitimacy to its operations. Sampark operated in violation of several norms.

“In order to ensure (that) norms of ‘fair access’ were not breached, it was possible for NSE to negate advantage of connecting first by implementing a ‘randomiser’ [,] which would randomly pick a connection to begin dissemination of data, rather than starting with the first connection each time. NSE failed to implement randomiser,” SEBI said.

OPG managed to login first in 87.25 per cent of the trading days in 2012. In 2013, it managed to login first in 96.80 per cent of trading days in one co-location server, and 95.20 per cent in another. From January 2014 to April 2014, that is, prior to the introduction of a multi-cast tick-by-tick, OPG managed to login first on all trading days on a server.

However, SEBI observed that after the introduction of the multi-cast from April 7, 2014, till December 2014, OPG’s first-access occurred only on 19.10 per cent of trading days. In 2015, this dropped further, indicating it no longer had the advantage it had prior to the multi-cast system.

In their statement, Sanjay Gupta and Aman Kokarady (software architect and developers for OPG) told SEBI they did not not receive any information from NSE officials on the start-up time of the NSE Server daily/routinely. But SEBI found one email from Kokardy to NSE’s Nagendra Kumar, which said: “Early Login — We have at certain times seen benefit by logging in early — need to understand if early login is indeed important.”

It is believed that OPG gained more than ₹25 crore through the preferential access, but it is not clear if this was for one day or for the entire period between 2010 and 2015.

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Published on July 31, 2018

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