Deloitte audit finds lapses in NSE algo system

Deloitte India’s forensic audit of the allegations against the National Stock Exchange (NSE), of unfair access to brokers using algorithmic ('algo') trading, has found instances of technical lapses. The audit found the placement of servers on NSE’s premises might have given some unfair advantages to brokers, said a person with knowledge of the development.

The audit report, however, has not found any individual involvement or human fault, as flagged by the Securities and Exchange Board of India’s (Sebi’s) technical advisory committee (TAC).

The NSE board will examine the audit findings and decide the course of action before the end of this month, said a person privy to the development. The final report will also be shared with Sebi.

Algo trading refers to orders generated at super fast speed by use of advanced mathematical models that involve automated execution of a trade. Co-location involves setting up servers on the exchange premises. An NSE spokesperson said he could not comment on the report. Deloitte was appointed by NSE on a Sebi order. The regulator wanted to know if the exchange made undue favours to some brokers. It had also directed the exchange to deposit all revenues generated from such practices into an escrow account. The audit report says there should have been more checks on the co-location facility. It has also raised concerns about algo trading. The matter came to light when a whistle-blower from Singapore wrote three letters to the finance ministry, alleging a broker, OPG Securities, gained unfair access while trading on NSE’s algo platform. A probe was launched by the TAC, whose report came in March.