NSE co-location probe glitch gathers pace now

New Delhi: As a multi-agency probe into the NSE case gathers pace, the grant of preferential server and data access to select brokers and their suspected misuse are being investigated threadbare to unveil all quid pro quo arrangements in a highly-sophisticated scheme that worked like a cricket betting scandal, officials said on Monday. While the bourse said it has taken several steps over the years to strengthen its technology infrastructure, including as per regulatory orders, the officials said certain fresh disclosures call for a detailed probe into whether a select group of individuals in high positions had banded together to make illicit gains by facilitating the preferential trading slots, beginning over a decade ago.

Even a split-second faster access is said to result in huge gains for a trader. The preferential access allegedly did not include just close proximity to the exchange servers, but also provided faster and 'Tick-By-Tick' (TBT) data containing minute details about all trades and orders. Explaining how the system worked, one of the senior officials said, "the best analogy to understand this highly-technical matter is cricket and betting. For a common investor or a broker trading on his or her normal terminal is like watching the live telecast of the match on television or in a stadium. But imagine your eyes and ears right behind every single player in the field, getting to know their moves and strategies on a real-time basis before anyone else," the official said.

"And, we are not even talking about match-fixing. The sophisticated algorithms at play make it possible to access a huge amount of data on a real-time basis with the use of modern computer systems and high-tech software solutions," the official added.

The investigating agency CBI has questioned former NSE group operating officer (GOO) Anand Subramanian in connection with its ongoing probe into alleged irregularities by a stock broker, the ambit of which was expanded after a recent Sebi report cited 'governance lapses' at the exchange, officials said on Monday.

The official also countered an ongoing narrative that there was no loss to investors, saying the genuine investors were definitely on the losing side as this system was facilitating a select few to buy shares at a lower price and sell those at a higher price due to their faster access.

"The difference may be very small for one individual investor, possibly just one rupee or a few paise per share, but when you look at the huge amount of trades running into lakhs and crores every day, the overall gains for the selected brokers could have run into hundreds and thousands of crores of rupees over a period of few years," he added.

The issues under the scanner include possible pecuniary gains made by some top exchange officials and certain middlemen as also internal and external approvals for roll-out and operation of controversial 'co-location' and sophisticated algorithm-based 'high frequency trading' facilities. The officials said the money trail at various levels, including to and from the concerned brokers' accounts, would be looked into, in addition to financial accounts of a large number of individuals who were directly or indirectly associated with the matter, especially between 2009 and 2016, from inside or outside the exchange.

If required, help would be sought from foreign regulators and agencies, they added. The National Stock Exchange, the country's largest bourse, is believed to have rolled out the co-location services in 2009-2010. One major roadblock in the investigations so far has been a missing trove of e-mails and fresh attempts are being made to retrieve those as a large number of computer hardware, including laptops, used by some top officials were destroyed by the exchange long back as 'e-waste'.