NSE submits 2 audit reports to Sebi on co-location matter

The National Stock Exchange (NSE) on Tuesday submitted two separate audit reports to the Securities and Exchange Board of India (Sebi), prepared by EY and Indian School of Business (ISB), Hyderabad, relating to the co-location matter.

Sebi began investigating the matter in early 2015, after multiple complaints that some brokers allegedly got preferential access at the exchange’s co-location facility.

Deloitte had done a forensic audit on the matter. Its report said Delhi-based brokerage firm OPG Securities was consistently able to connect to the exchange’s trading system ahead of other trading members. The report said this would not have been possible without knowledge of the NSE team.

EY was appointed by the NSE early this year to audit its cash, currency derivatives and interest rate futures markets, to ascertain if these segments were also prone to manipulation like the equity derivatives segment. The ISB study was to determine whether any abnormal profits were made as a result of first log-in to servers by members named in the Deloitte report, the exchange said. The NSE has refused to comment on the findings of the report.

Sources say the findings of the latest audit reports will help Sebi decide on the NSE’s consent plea to settle the co-location matter.

Soon after Deloitte submitted its report, the regulator had called for another audit of the cash and currency segments. Based on Deloitte and Sebi’s internal findings, Sebi had served show-cause notices to the NSE and 14 of its current and former key management personnel for alleged irregularities at the co-location facility.

Sebi has also ordered another forensic audit to establish any collusion between brokers and officials of the NSE.