NSE board to discuss EY cash segment audit

The National Stock Exchange (NSE) is likely to take up accounting firm EY’s forensic audit report on the cash segment at its next board meeting scheduled for November 4. The NSE board is also likely to discuss the report submitted by the Securities and Exchange Board of India’s (Sebi’s) corporate governance committee, made public earlier this month.

EY, appointed to conduct an audit of the equity cash and currency derivatives segment, is expected to submit its report by the end of this month.

EY’s findings are critical for the NSE’s consent plea filed with market regulator Sebi in the co-location matter.

“Submission of all such compliance reports is crucial at a time when the exchange wants to settle all pending allegations pertaining to the co-location controversy,” said a person in the know.

According to sources, the audit report prepared by EY is in the final stages of submission. Just like the Deloitte report on the NSE’s equity derivatives segment, the EY report, too, could ask the exchange to beef up its systems.

“The forensic audit report may suggest enhancing the existing framework. The report may also point out certain flaws in its technology architecture which could be prone to manipulation,” said the person cited above.

An email sent to NSE did not elicit any response.

Deloitte Touche Tohmatsu India was appointed by the NSE on Sebi’s directive. In its report, Deloitte had said the stock exchange’s systems were prone to manipulation. The report, however, has not found any human intervention or fault as flagged by Sebi’s technical advisory committee (TAC).

After Deloitte submitted its audit report to the Sebi, the regulator had called for another audit of cash and currency segments to check whether they, too, were prone to manipulation.

Based on the report’s findings, Sebi served a show-cause notice to the NSE and 14 of its current and former key management personnel for alleged irregularities at the co-location facility.

Meanwhile, the regulator had also ordered a forensic audit to establish collusion between brokers and officials of the NSE. Sources said the bourse may not review the consent plea until it gets the report from auditors. The Sebi began investigating the matter in early 2015 after receiving multiple complaints that some brokers allegedly got preferential access at the exchange’s co-location facility.