SEBI lashes whip on brokers in Dark Fibre case, NSE redrafts algo policies

The Securities and Exchange Board of India (SEBI) has initiated a special audit of 15 brokers in reference to alleged unfair access given to them at the National Stock Exchange of India (NSE). The regulator is to determine the extent of unlawful gains they may have made as these brokers got alleged unfair access to the algorithmic trading systems.

These brokers have been named in an earlier SEBI investigation and a forensic audit done by Deloitte India for NSE. It has been learnt that the Deloitte report had identified some of the NSE employees also who might have given these preferential treatments to some brokers.

A few other brokers among these brokers misused dark fibre technology. Dark fibre refers to a dedicated communication line through which messages travel faster than regular lines because of the absence of other traffic.

In these cases, no material gains have been established so far. At the same time, the first log in cannot be equated as bad faith and NSE examination points that these brokers did nothing with the unfair advantage.

A transactional audit will help SEBI to determine how much of it was on the account of unfair access. The market regulator has asked NSE to strengthen its systems and policies around co-location and high frequency trading (HFT), following which NSE is redrafting its entire policy towards algorithmic trading.