CBI seeks details from Sebi on NSE co-location issue

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.

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.