NSE CASE: IT DEPARTMENT CONDUCTS SEARCHES

MUMBAI: Two days after the National Stock Exchange of India Ltd( N SE) submitted two forensic audit reports to the Securities and Exchange Board of India, the income tax department stepped in on Thursday to verify the extent of illegal gains made by some brokers who gained preferential access to the NSE’s highspeed trading platform.

The I-T department in Delhi and its Mumbai arm conducted searches of the premise of brokers and former and current officials of NSE in connection with the controversy, said a spokesperson for the Central Board of Direct Taxes (CBDT).

“The searches on brokers were to assess or determine ill-gotten assets and wealth arising out of preferential access on NSE’s co-location platform. Former and current N SE officials were raided to determine whether there are unexplained or unreported assets or wealth that were acquired as gratification for providing preferential access. More than 20 premises have been searched,” said an IT official on the condition of anonymity.

A spokesperson for NSE declined to comment.

The searches were conducted on the premises of 15 brokers identified by Sebi in its investigation of improprieties in so-called algorithmic trading, said the official cited above. Some NSE officials who received show-cause notices from Sebi were also raided, he added.

Algorithmic trading refers to the use of electronic systems to execute thousands of orders on the stock exchange in less than a second.

Members who co-locate their servers on the premises of the exchange gain because their orders travel faster.

On May 22, Sebi issued showcause notice st oN SE and 14 current and former officials for allegedly failing in their fiduciary duty and allowing a few brokers to take unfair advantage of NSE’s algorithmic trading platform and for not co operating with Se bi during the investigation.

Twelve of these officials and NSE have applied with the regulator to settle the charges by paying a penalty without admission or denial of guilt under the so-called consent mechanism.

The searches came after NSE submitted forensic audits by EY India on NS E’ s cash and currency segments and another report by the Hyderabad-based International School of Business (ISB).

Both the audits have given a clean chit to NSE and its officials, two people with direct knowledge of the matter.

THE SEARCHES WERE CONDUCTED ON THE PREMISES OF 15 BROKERS IDENTIFIED BY SEBI IN ITS PROBE OF IMPROPRIETIES IN ALGORITHMIC TRADING