NSE's new multicast trading system gets EY thumbs up

The National Stock Exchange (NSE)'s new multicast trading system, used for sending data feeds to trading members and brokers, has received a thumbs-up from EY. 

According to sources, the auditing and consultancy firm has certified that the upgraded data dissemination system is more foolproof and better placed to prevent manipulation. NSE has sent the EY certification to the markets regulator, Securities and Exchange Board of India (Sebi), the source added. 

NSE had EY conduct a separate audit for its trading system to validate the new system, which the exchange had put in place since May 2014.

"Your queries relate to issues under discussion between us and the regulator. So, we will not be able to comment," said an exchange official, when asked to confirm the development.

Multicast is a communication tool where data feeds are delivered to destination computers simultaneously. Earlier, NSE had used a unicast system, later found prone to manipulation. Under unicast, processed data packets are sent to destination computers one by one, with those connecting first getting preference. The multicast system sends out raw data feeds which need to be processed on the brokers' system.

Flaws in the earlier trading system used by NSE were brought to light by a whistle-blower's complaint in January 2015. 

Subsequently, Sebi set up an experts committee to do fact-checking of the complaints. It also asked NSE to conduct a third-party forensic audit of its trading systems. Both the Sebi committee and third-party auditor Deloitte, in their reports, alleged NSE's earlier system was prone to manipulation and certain brokers were able to exploit the systems. 

EY is also conducting an audit on NSE's currency derivatives and cash segments, to check if systems used in these are prone to manipulation.