1. Remedial actions underway in NSE co-location case: Sebi

Remedial actions underway in NSE co-location case: Sebi

Capital markets regulator Sebi today said the work is underway to address the concerns related to systems and processes at NSE, arising out of a probe into alleged lapses involving the co-location facility of the country's biggest stock exchange

By: | New Delhi | Published: February 11, 2017 4:40 PM
As advised by Sebi, NSE's board has also undertaken an independent forensic audit on the matter. (PTI) As advised by Sebi, NSE’s board has also undertaken an independent forensic audit on the matter. (PTI)

Capital markets regulator Sebi today said the work is underway to address the concerns related to systems and processes at NSE, arising out of a probe into alleged lapses involving the co-location facility of the country’s biggest stock exchange. The ongoing probe is already being seen as a roadblock for NSE’s proposed mega IPO, estimated to be worth about Rs 10,000 crore, even as Sebi Chairman U K Sinha was today non- committal on whether clearance to the public offer would be withheld till the investigation was completed but insisted that the regulator would insist on proper disclosures. At a meeting of its board, which was earlier in the day also addressed by Finance Minister Arun Jaitley, Sebi shared a status report on action taken by it following complaints about certain brokers getting preferential access and alleged lapses relating to NSE’s co-location facility.

At a meeting of its board, which was earlier in the day also addressed by Finance Minister Arun Jaitley, Sebi shared a status report on action taken by it following complaints about certain brokers getting preferential access and alleged lapses relating to NSE’s co-location facility. After the meeting, Sinha said the board was apprised of the latest position and various developments with regard to NSE on the co-location and other matters. Asked whether the clearance to NSE’s proposed IPO would be postponed till the investigation was completed, Sinha told reporters the regulator insists on disclosure in draft prospectus filed for IPOs and it would follow that.

“If you understand the DRHP process in Sebi, Sebi insists on disclosure. If (it is) a hypothetical question of yours, Sebi will go for disclosures. What is going to be the disclosures, in what manner it is, how it is disclosed those are areas we will look into,” he 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 was discussed at Sebi’s board meet. 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.

The Finance Ministry has also asked Sebi to elaborate on “the rationale of advice to NSE to conduct forensic investigation on its lapses rather than conducting it under the supervision of Sebi”. Among others, Sebi had received references from the Finance Ministry, VVIPs, Members of Parliament and CBI on complaints relating to the NSE co-location matter. Sebi is believed to have provided the requisite details to them. 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 shortcomings 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. After the meeting, Sebi said in a statement, “The board took note of the information memorandum on various references received related to co-location facility of NSE and the examination carried out by Sebi under the guidance of the Technical Advisory Committee (TAC) of Sebi.”

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As advised by Sebi, NSE’s board has also undertaken an independent forensic audit on the matter. “The board also took note of steps taken by SEBI in consultation with TAC to strengthen the exchange’s trading infrastructure in the areas namely, fair and transparent data dissemination process, tools to monitor service quality of data feeds, mechanism to manage system load in a fair manner, direct connectivity between co-location facilities of exchanges, etc. “The concerns related to systems and processes at the exchange arising out of examinations are being addressed in consultation with TAC and NSE’s board,” it added.

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