The market regulator will take up the issue of alleged unfair access at National Stock Exchange (NSE) at its board meeting on Saturday, sources said. Securities and Exchange Board of India (Sebi) is also likely to tell its board about current participatory note (P-note) framework and may recommend against further tightening it. The board meeting after Union Budget is customary; it could be attended by Union finance minister Arun Jaitley.
The countrys largest exchange firm, NSE, is embroiled in allegations of allowing unfair access to trade data to certain brokers at co-location facility. At a colocation centre, you can place your computer containing trading algorithms next to an exchange’s data centre, which matches buy and sell orders. This shaves crucial milliseconds from the time it takes to complete a trade. If traders are located 100 miles away from an exchange, they face a delay of one millisecond whenever they seek to trade a price via their computer screen.
"Sebi will present the board with all the facts and developments on NSE colocation issue. The findings of various audits, done by its internal panel and external agencies, on the exchanges systems will be discussed," said a source privy to the Sebi board meeting agenda.
The source added that the market regulator may only take action if it is established the exchange or any broker made monetary gains by virtue of alleged preferential access.
The issue dates back to 2012 and had come to light after a whistle-blower had written to Sebi alleging NSEs systems were being misused as a certain broker consistently obtained first access to trade data.
Sebis stand on the issue is critical as NSE is in the process of launching its initial public offering (IPO) of shares. The exchange has filed its offer document to Sebi. Many market players believe Sebi should address the issue of alleged unfair access before it gives nod to the IPO.
Sebi had constituted an expert committee to examine the allegations against NSE. The committee had presented its findings a year ago. Later, Sebi had directed NSE to appoint a third party to conduct aforensic audit of its systems. The forensic audit said that NSEs systems were prone to manipulation and alleged there was absence of protocols related to data retention and other information for certain former employees of NSE. The audit, however, found no instances of many monetary gains made by any party. The exchange subsequently had moved to a so-called multicast system for providing data feeds to market participants. Under the new system, the trade data were made available to everyone simultaneously. NSEs board, too, had been personally monitoring the issue of alleged unfair issue.
P-note tightening
On the issue of P-notes, Sebi may tell board about the impact of the new framework which was notified mid-2016. The share of p-notes in overall foreign portfolio investors (FPI) has come down to eight per cent after Sebi had introduced more stringent disclosure norms.
Sources said Sebi is of the view that further tightening of P-note norms may not be warranted. However, if the government or the Supreme Court-appointed panel on black (unaccounted) money takes a different view, Sebi would take their suggestions on board. This issue is triggered by concerns raised by a Special Investigation Team (SIT) on black money, which believes the P-note route could still be used by Indian companies to bring back unaccounted money. SIT is said to have asked Sebi to furnish details of all those investing through this route.
Other items
Sebi could also update its board on the ongoing probe into the National Spot Exchange Limited (NSEL) matter. Regulator reportedly has sent showcause notice to five brokers for alleged irregularities/violations of securities norms, which include false assurances to investors, wrong and misleading statements, arbitrage products sold with assured returns, mis-selling in terms of risk suitability for clients, and client-code modification for those trading on the NSEL platform.
07TH FEBRUARY, 2017, BUSINESS STANDARD, NEW-DELHI
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