RBI, Sebi step up NSE algo probe, top officials under scanner

Regulators RBI and Sebi have stepped up probe into alleged lapses in high-frequency trading offered through NSE's 'co-location' facility, while the role of some top officials including board member and ex-CEO Ravi Narain is also being looked into.

The finance ministry is also keeping a "close watch" on the entire case and wants capital markets watchdog Sebi to fast-track the investigations as it involves the country's largest stock exchange in terms of turnover and may have a bearing on the overall market sentiments, sources said.

"The show-cause notices have been issued by Sebi to the exchange and several top executives including Narain as also some former top management personnel and these would be soon followed by 'summons' for their personal hearings," a top official said. Multiple sources including from the regulatory authorities, the government as well as from the exchange itself said that pressure is building from within the board of the exchange, from some of its shareholders and a few other stakeholders for exit of some top as well as mid-level executives.

While sources close to the top management of the exchange vehemently denied any move regarding exit of Narain or others, one of the senior-most board members described the situation as "a complete mess" and said stern remedial measures have become necessary to send across a strong message.

"It has become very important to tell the world that the exchange is serious about keeping its image clean and acting against any lapses, rather than sweeping things under the carpet," he said, pointing out that the delay in "closing the matter" has begun to result in several resignations at top-to -middle levels. When contacted, an NSE spokesperson declined to give any official comment on specific queries and said: "As the matter is under discussion between NSE and the regulator, you will appreciate that we will not be able to comment on your queries.

"The Sebi has also received 'references' from agencies like CBI as well as from some MPs regarding the case, in which the regulator began a probe in early 2015, months after it was brought to light by 'whistle-blower' complaints but no conclusive action has been taken as yet, a top official said.

The case relates to some brokers allegedly getting preferential access through co-location facility at the NSE, 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.

Some staff members allegedly told the forensic auditors that they acted on "advice from seniors" regarding preferential access for some to the co-location facility and this allegation is being looked into specifically by Sebi, the official said.