SFIO may probe NSE co-location issue

Widening the investigation into the highprofile National Stock Exchange co-location case, the government is likely to bring in the Serious Fraud Investigation Office to delve into possible violations of corporate law, while the Securities and Exchange Board of India may issue show-cause notices to many more entities, including brokers, officials said. Sebi had previously issued notices to 14 individuals and entities.

Widening the investigation into the high profile National Stock Exchange (NSE) co-location case, the government is likely to bring in the Serious Fraud Investigation Office (SFIO) to delve into possible violations of corporate law, while market the Securities and Exchange Board of India (Sebi) may issue show cause notices to many more entities including brokers, officials said.

Sebi had previously issued notices to 14 individuals and entities and the scope of the probe has widened considerably since then amid concerns of possible illicit fund flows involving certain market entities, according to official sources.

While the government is keeping a close tab on the developments related to the colocation case at the country’s largest exchange few years ago, multiple agencies, including the Income Tax Department, are moving ahead with their respective probes.

The matter of some brokers allegedly getting preferential access in the high frequency trading system at the NSE came to the notice of the Sebi through a whistleblower.

The SFIO might be asked to look into the alleged violations of companies law as the possibility of substantial illicit fund flows among certain entities in the co-location case is being suspected, sources said.

Since the role of some former and current NSE officials is also under the scanner, an SFIO investigation could help in ascertaining possible violations in terms of corporate governance and companies law framework, they added.

According to the sources, it is also suspected that certain brokers might have made abnormal profits by way of preferential access to the exchange’s servers.

The case relates to some brokers allegedly getting preferential access through co-location facility at the NSE, early login and dark fibre, which can allow a trader a split-second faster access to data feed of an exchange. A split-second faster access can also result in huge gains for a trader.

Besides Sebi, the Reserve Bank of India (RBI), the Income Tax Department and the Central Bureau of Investigation (CBI) are looking into the matter.

More than two years after the case came under the regulatory lens, many entities are under the scanner and the scope of the overall probe is getting widened, sources said.