New Delhi: As a Sebi probe continues into alleged preferential access given by top stock exchange NSE to some brokers through its 'co-location' facility, premier investigative agency CBI has sought details from the market watchdog on this matter.
In what now appears to be becoming a case being looked into by multiple agencies and regulators, the Reserve Bank has also asked Sebi whether "the alleged short-comings in NSE's system architecture" pertained to operations of the exchange traded currency and interest rate derivatives, sources said.
Besides, Sebi has received complaints raising the issue of 'independence' of a forensic probe into the matter as Ravi Narain, who was NSE's MD and CEO during 2010-13, was part of the team of board members of the exchange that supervised the forensic investigation done by Deloitte. Sebi has sought comments from NSE's board on this matter as the period of investigation assigned to the forensic auditor was 2010-15, a top official said.
As the case relates to the country's largest stock exchange in terms of turnover of securities market, a detailed status report on the entire NSE co-location matter will be discussed tomorrow at Sebi's board meet, which will follow an address by Finance Minister Arun Jaitley to the board members and top officials of the market regulator. While detailed queries sent to NSE remained unanswered, the sources familiar with its thinking said the exchange believes that "there has been no conclusive evidence of any manipulation".
Asserting that the exchange was not "hushing up the matter" as has been alleged, the sources said NSE was following each and every direction of the regulators while systems and technology were already in place to ensure no preferential access was given to any broker.
The sources also said the exchange has not heard anything directly so far from CBI and RBI, but "the work is already on" in strengthening various policy framework and systems to ensure there are no lapses at its end, going ahead.
Sebi began probing the matter in early 2015 after it received at least three complaints related to some brokers allegedly getting preferential access through co-location facility, early login and 'dark fiber' -- which can allow a trader a split-second faster access to data feed of an exchange. Even a split-second faster access is considered to result in huge gains for a trader.
Sebi has received "various references" from the Ministry of Finance, VVIPs and CBI, etc, in relation to complaints against NSE, the official said, while adding that the finance ministry has been informed of the progress made in the matter. CBI has also been given the requested details regarding action taken on the issue while Sebi has provided the details sought by a Member of Parliament on this matter.
The finance ministry had also asked Sebi to elaborate on "the rationale of advice to NSE to conduct forensic investigation on its lapses rather than conducting it under supervision of Sebi". The official said the ministry has been given details.
On complaint relating to 'independence' of the forensic probe in view of former exchange chief Narain's presence on board team, the sources familiar with NSE's thinking said there was no 'conflict of interest' and the entire process was supervised and monitored at multiple levels, including by the entire board and the market regulator Sebi itself.
In complaints received by Sebi, it was alleged that NSE's system architecture allowed 'Tick-by-Tick' price information to be disseminated sequentially in the order brokers connected or logged-in to the server.
Further, multiple TBT servers at NSE experienced varied load and started at different time while the back-up servers were allegedly allowed to be accessed by certain brokers as load on such servers was low.
It was also alleged that some brokers colluded with NSE's employees and outsourced staff to obtain information regarding load and starting of servers, including backup servers. This enabled 'first-to-connect' brokers to get date ahead of others for three years between 2011 and 2014.
Besides, differential access in the form of 'dark fiber' was allegedly given to one trading member at NSE in particular to connect across NSE and BSE co-location at least 4-5 months ahead of other members, as per the complaints. Detailing the action taken on the matter, Sebi said it set up a cross-functional team (CFT) for preliminary fact- finding and it identified some technological issues warranting detailed examination by an expert.
Sebi's Technical Advisory Committee subsequently recommended setting up an expert committee, which submitted its report to the regulator in March last year. The TAC observed that NSE had violated norms of fair access and allowed some brokers to benefit. Also, when the complaint was first made to NSE, its management dismissed it and didn't initiate any steps to check the possibility of any collusion with the staff of NSE.
It was also observed that NSE's TBT dissemination architecture was prone to manipulation and market abuse while the alleged broker referred to in the complaint, OPG Securities, was able to gain from the exploitation of NSE's TBT architecture.
Regarding the issue of Dark Fiber, NSE allowed non-ISPs like Sampark Infotainment to lay fiber on its premises for various members in violation of its own policy on allowing only ISPs, the TAC noted. At the same time, the TAC also observed that it was not possible from the available data alone to investigate and determine the extent of collusion of NSE officials with OPG or
others.
Sebi subsequently sought response of NSE on the examination report, which the exchange submitted later, and the findings were also discussed with the board of the bourse. The TAC recommended that NSE's board should immediately initiate an independent examination, including a forensic probe by an external agency, of all concerns highlighted in Sebi expert committee report and fix the accountability for the breaches covering NSE, brokers, vendors and outsourced entities involved in the matter.
As an interim measure, NSE was also asked to place all revenues from co-location facility, including from any fiber connectivity from broker's co-location facility to their offices, in an escrow account.
NSE's board was also asked to complete the probe and submit a comprehensive report to Sebi within three months. Consequently, the NSE board appointed Deloitte to conduct the forensic probe and sought an extension of time up to December 31, 2016, to submit a report to Sebi.
The exchange also discontinued TCP-based TBT broadcast with effect from close of business on December 3, 2016. In the meantime, Sebi ordered its supervision and surveillance departments to conduct specific-purpose inspections to ascertain role of brokers and the trading activity of certain brokers for any manipulation, including allegations of collusion with exchange officials.
New Delhi: As a Sebi probe continues into alleged preferential access given by top stock exchange NSE to some brokers through its 'co-location' facility, premier investigative agency CBI has sought details from the market watchdog on this matter.
In what now appears to be becoming a case being looked into by multiple agencies and regulators, the Reserve Bank has also asked Sebi whether "the alleged short-comings in NSE's system architecture" pertained to operations of the exchange traded currency and interest rate derivatives, sources said.
Besides, Sebi has received complaints raising the issue of 'independence' of a forensic probe into the matter as Ravi Narain, who was NSE's MD and CEO during 2010-13, was part of the team of board members of the exchange that supervised the forensic investigation done by Deloitte. Sebi has sought comments from NSE's board on this matter as the period of investigation assigned to the forensic auditor was 2010-15, a top official said.
As the case relates to the country's largest stock exchange in terms of turnover of securities market, a detailed status report on the entire NSE co-location matter will be discussed tomorrow at Sebi's board meet, which will follow an address by Finance Minister Arun Jaitley to the board members and top officials of the market regulator. While detailed queries sent to NSE remained unanswered, the sources familiar with its thinking said the exchange believes that "there has been no conclusive evidence of any manipulation".
Asserting that the exchange was not "hushing up the matter" as has been alleged, the sources said NSE was following each and every direction of the regulators while systems and technology were already in place to ensure no preferential access was given to any broker.
The sources also said the exchange has not heard anything directly so far from CBI and RBI, but "the work is already on" in strengthening various policy framework and systems to ensure there are no lapses at its end, going ahead.
Sebi began probing the matter in early 2015 after it received at least three complaints related to some brokers allegedly getting preferential access through co-location facility, early login and 'dark fiber' -- which can allow a trader a split-second faster access to data feed of an exchange. Even a split-second faster access is considered to result in huge gains for a trader.
Sebi has received "various references" from the Ministry of Finance, VVIPs and CBI, etc, in relation to complaints against NSE, the official said, while adding that the finance ministry has been informed of the progress made in the matter. CBI has also been given the requested details regarding action taken on the issue while Sebi has provided the details sought by a Member of Parliament on this matter.
The finance ministry had also asked Sebi to elaborate on "the rationale of advice to NSE to conduct forensic investigation on its lapses rather than conducting it under supervision of Sebi". The official said the ministry has been given details.
On complaint relating to 'independence' of the forensic probe in view of former exchange chief Narain's presence on board team, the sources familiar with NSE's thinking said there was no 'conflict of interest' and the entire process was supervised and monitored at multiple levels, including by the entire board and the market regulator Sebi itself.
In complaints received by Sebi, it was alleged that NSE's system architecture allowed 'Tick-by-Tick' price information to be disseminated sequentially in the order brokers connected or logged-in to the server.
Further, multiple TBT servers at NSE experienced varied load and started at different time while the back-up servers were allegedly allowed to be accessed by certain brokers as load on such servers was low.
It was also alleged that some brokers colluded with NSE's employees and outsourced staff to obtain information regarding load and starting of servers, including backup servers. This enabled 'first-to-connect' brokers to get date ahead of others for three years between 2011 and 2014.
Besides, differential access in the form of 'dark fiber' was allegedly given to one trading member at NSE in particular to connect across NSE and BSE co-location at least 4-5 months ahead of other members, as per the complaints. Detailing the action taken on the matter, Sebi said it set up a cross-functional team (CFT) for preliminary fact- finding and it identified some technological issues warranting detailed examination by an expert.
Sebi's Technical Advisory Committee subsequently recommended setting up an expert committee, which submitted its report to the regulator in March last year. The TAC observed that NSE had violated norms of fair access and allowed some brokers to benefit. Also, when the complaint was first made to NSE, its management dismissed it and didn't initiate any steps to check the possibility of any collusion with the staff of NSE.
It was also observed that NSE's TBT dissemination architecture was prone to manipulation and market abuse while the alleged broker referred to in the complaint, OPG Securities, was able to gain from the exploitation of NSE's TBT architecture.
Regarding the issue of Dark Fiber, NSE allowed non-ISPs like Sampark Infotainment to lay fiber on its premises for various members in violation of its own policy on allowing only ISPs, the TAC noted. At the same time, the TAC also observed that it was not possible from the available data alone to investigate and determine the extent of collusion of NSE officials with OPG or
others.
Sebi subsequently sought response of NSE on the examination report, which the exchange submitted later, and the findings were also discussed with the board of the bourse. The TAC recommended that NSE's board should immediately initiate an independent examination, including a forensic probe by an external agency, of all concerns highlighted in Sebi expert committee report and fix the accountability for the breaches covering NSE, brokers, vendors and outsourced entities involved in the matter.
As an interim measure, NSE was also asked to place all revenues from co-location facility, including from any fiber connectivity from broker's co-location facility to their offices, in an escrow account.
NSE's board was also asked to complete the probe and submit a comprehensive report to Sebi within three months. Consequently, the NSE board appointed Deloitte to conduct the forensic probe and sought an extension of time up to December 31, 2016, to submit a report to Sebi.
The exchange also discontinued TCP-based TBT broadcast with effect from close of business on December 3, 2016. In the meantime, Sebi ordered its supervision and surveillance departments to conduct specific-purpose inspections to ascertain role of brokers and the trading activity of certain brokers for any manipulation, including allegations of collusion with exchange officials.
New Delhi: As a Sebi probe continues into alleged preferential access given by top stock exchange NSE to some brokers through its 'co-location' facility, premier investigative agency CBI has sought details from the market watchdog on this matter.
In what now appears to be becoming a case being looked into by multiple agencies and regulators, the Reserve Bank has also asked Sebi whether "the alleged short-comings in NSE's system architecture" pertained to operations of the exchange traded currency and interest rate derivatives, sources said.
Besides, Sebi has received complaints raising the issue of 'independence' of a forensic probe into the matter as Ravi Narain, who was NSE's MD and CEO during 2010-13, was part of the team of board members of the exchange that supervised the forensic investigation done by Deloitte. Sebi has sought comments from NSE's board on this matter as the period of investigation assigned to the forensic auditor was 2010-15, a top official said.
As the case relates to the country's largest stock exchange in terms of turnover of securities market, a detailed status report on the entire NSE co-location matter will be discussed tomorrow at Sebi's board meet, which will follow an address by Finance Minister Arun Jaitley to the board members and top officials of the market regulator. While detailed queries sent to NSE remained unanswered, the sources familiar with its thinking said the exchange believes that "there has been no conclusive evidence of any manipulation".
Asserting that the exchange was not "hushing up the matter" as has been alleged, the sources said NSE was following each and every direction of the regulators while systems and technology were already in place to ensure no preferential access was given to any broker.
The sources also said the exchange has not heard anything directly so far from CBI and RBI, but "the work is already on" in strengthening various policy framework and systems to ensure there are no lapses at its end, going ahead.
Sebi began probing the matter in early 2015 after it received at least three complaints related to some brokers allegedly getting preferential access through co-location facility, early login and 'dark fiber' -- which can allow a trader a split-second faster access to data feed of an exchange. Even a split-second faster access is considered to result in huge gains for a trader.
Sebi has received "various references" from the Ministry of Finance, VVIPs and CBI, etc, in relation to complaints against NSE, the official said, while adding that the finance ministry has been informed of the progress made in the matter. CBI has also been given the requested details regarding action taken on the issue while Sebi has provided the details sought by a Member of Parliament on this matter.
The finance ministry had also asked Sebi to elaborate on "the rationale of advice to NSE to conduct forensic investigation on its lapses rather than conducting it under supervision of Sebi". The official said the ministry has been given details.
On complaint relating to 'independence' of the forensic probe in view of former exchange chief Narain's presence on board team, the sources familiar with NSE's thinking said there was no 'conflict of interest' and the entire process was supervised and monitored at multiple levels, including by the entire board and the market regulator Sebi itself.
In complaints received by Sebi, it was alleged that NSE's system architecture allowed 'Tick-by-Tick' price information to be disseminated sequentially in the order brokers connected or logged-in to the server.
Further, multiple TBT servers at NSE experienced varied load and started at different time while the back-up servers were allegedly allowed to be accessed by certain brokers as load on such servers was low.
It was also alleged that some brokers colluded with NSE's employees and outsourced staff to obtain information regarding load and starting of servers, including backup servers. This enabled 'first-to-connect' brokers to get date ahead of others for three years between 2011 and 2014.
Besides, differential access in the form of 'dark fiber' was allegedly given to one trading member at NSE in particular to connect across NSE and BSE co-location at least 4-5 months ahead of other members, as per the complaints. Detailing the action taken on the matter, Sebi said it set up a cross-functional team (CFT) for preliminary fact- finding and it identified some technological issues warranting detailed examination by an expert.
Sebi's Technical Advisory Committee subsequently recommended setting up an expert committee, which submitted its report to the regulator in March last year. The TAC observed that NSE had violated norms of fair access and allowed some brokers to benefit. Also, when the complaint was first made to NSE, its management dismissed it and didn't initiate any steps to check the possibility of any collusion with the staff of NSE.
It was also observed that NSE's TBT dissemination architecture was prone to manipulation and market abuse while the alleged broker referred to in the complaint, OPG Securities, was able to gain from the exploitation of NSE's TBT architecture.
Regarding the issue of Dark Fiber, NSE allowed non-ISPs like Sampark Infotainment to lay fiber on its premises for various members in violation of its own policy on allowing only ISPs, the TAC noted. At the same time, the TAC also observed that it was not possible from the available data alone to investigate and determine the extent of collusion of NSE officials with OPG or
others.
Sebi subsequently sought response of NSE on the examination report, which the exchange submitted later, and the findings were also discussed with the board of the bourse. The TAC recommended that NSE's board should immediately initiate an independent examination, including a forensic probe by an external agency, of all concerns highlighted in Sebi expert committee report and fix the accountability for the breaches covering NSE, brokers, vendors and outsourced entities involved in the matter.
As an interim measure, NSE was also asked to place all revenues from co-location facility, including from any fiber connectivity from broker's co-location facility to their offices, in an escrow account.
NSE's board was also asked to complete the probe and submit a comprehensive report to Sebi within three months. Consequently, the NSE board appointed Deloitte to conduct the forensic probe and sought an extension of time up to December 31, 2016, to submit a report to Sebi.
The exchange also discontinued TCP-based TBT broadcast with effect from close of business on December 3, 2016. In the meantime, Sebi ordered its supervision and surveillance departments to conduct specific-purpose inspections to ascertain role of brokers and the trading activity of certain brokers for any manipulation, including allegations of collusion with exchange officials.
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
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