Sebi sends notices of justification to NSE, ex-MD

Mumbai: Sebi Markets Regulator served notice of justification to several entities in the co-location swindle at the National Stock Exchange (NSE), including Ravi Narain and Chitra Ramakrishna, both former MD's of the stock exchange, exchange it himself and several of his senior officials (former and serving). Notices are for various offenses such as preferential access to selected brokers and also to allow unauthorized service providers to work in its server rooms and with its systems.

Sebi also served an SCN to Ajay Shah, a former finance ministry official who is currently working with the Delhi-based economic think tank, the National Institute of Finance and Public Policy (NIPFP), for violation of the data sharing agreement with the NSE. related problems. In addition, the regulator also served the SCNs to OPG Securities, a brokerage firm in Delhi that would have been the primary beneficiary of any scam that allowed it to have access to the data trading before most other brokers. l & # 39; advantage. Other brokers have also been served in the NCS in the same case, sources said.

The case concerns the possibility for brokers to install their own servers next to the NSE trading servers in the premises of the stock exchange – called co-leasing or co-lo servers – so that They can benefit from faster access to the data exchanges compared to brokers who have their servers in their offices across the country.

Brokers who use the co-lo facility also use high-speed computers to generate thousands of trading strategies every second, called high-frequency trading or HFT trading, to make huge profits. The case of unfair access to OPG Securities and others had started in 2009 and continued until 2015, until a whistleblower wrote a letter to Sebi and to a financial magazine detailing the entire modus operandi.

Last month, Sebi's president, Ajay Tyagi, told reporters that the regulator had almost completed his investigations into the NSE's co-location scam and that he would soon be taking measures. An NSE source said the exchange had received Sebi's SNA and was studying it. "We will send our response to Sebi," said the source. In an email response, Shah said that he had not yet seen Sebi's notice.

According to market sources, Sebi's investigations were based on the testimony of more than 150 individuals from the NSE, brokerage firms and related entities, previously conducted by Deloitte & EY, his own judicial imaging of computers, servers and mobile phones of the entities and also trading data badyzes, communication records between the entities that were studied and the bank statements of these entities.

The investigators primarily examined allegations of violations of NSE's preferential access systems, which were not "fair and equitable", how unauthorized entities to work with NSE were allowed to pose. "black fiber" and share the data without permission. Shah and other people, said sources. "The investigations lasted seven years, from 2009 to 2016, and collected data of more than 50 terabytes," said one source.

The SCRs were served under Section 11B of the Sebi Act, which deals with the protection of investors' interests and the orderly development of the market, regulations prohibiting fraudulent business practices and unfair practices and rules governing investment dealers. .