Sebi’s forensic audit on NSE brokers to establish gains : 19 June 2017

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Sebi’s latest move could be critical in determining the finality of the case

The capital markets regulator, the Securities and Exchange of India (Sebi), is in the process of appointing a forensic auditor to ascertain if brokers and their clients made any profit by gaining preferential access to the colocation (colo) facility of the National Stock Exchange (NSE).

Although Sebi and auditor Deloitte have established the trading systems at the NSE’s colo facility were prone to manipulation, so far, they have not been able to find any proof of entities — a part of the ecosystem — making any monetary gain. Sebi’s latest move could be critical in determining the finality of the case, which the regulator has been probing since 2015.

“Sebi is the process of appointing a forensic auditor to inter alia determine the benefits/profits made by stockbrokers and their clients, software providers and any other entity by getting preferential access/treatment from the NSE,” Sebi Chairman Ajay Tyagi had said in a letter dated June 14.

The letter — a copy Business Standard has accessed — addresses Lok Sabha member Kirit Somaiya.

“Sebi has initiated a comprehensive investigation to examine connivance/collusion of the NSE’s employees with stockbrokers and any other entity to facilitate preferential access/treatment from the NSE,” the letter further says.

Sebi chairman also briefed the Lok Sabha member about the action taken so far in the matter.

Based on an internal examination, Sebi has issued show cause notices (SCNs) to the NSE and 14 officials for alleged violations of Securities Contracts (Regulation) Act and Stock Exchange and Clearing Corporation regulations.

The SCN mentions the failure on the part of the NSE officials in ensuring fair access and non-cooperation during the examination.

Meanwhile, the exchange is keen to settle the unfair access controversy through the consent mechanism. The decision in this regard was taken by the NSE board at its meeting held earlier this month.

The NSE board is of the view that the exchange is suffering due to the overhang of the case.

The allegations of preferential access against the NSE are for a period between 2011 and 2014 when certain brokers allegedly exploited the gaps in the algo-trading system to gain unfair access.

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