From January 2012, NSE staffers flagged ‘early access’ of brokers

The National Stock Exchange in Mumbai

The National Stock Exchange in Mumbai | Photo Credit: Reuters

A key issue that had allegedly created a potential advantage for some stock brokers over the others was the absence of “load balancers” and ‘randomisers’” for the Tick-By-Tick (TBT) data servers of the National Stock Exchange (NSE).

The risks involved were discussed within the exchange from January 2012 onwards, according to the Securities and Exchange Board of India (SEBI) records.

A “load balancer” ensures that the load is evenly distributed among the TBT servers and the ‘randomiser’ randomly picks a connection to begin data dissemination, rather than starting with the first connection each time.

Preferential access to market feed’

As part of the probe against broker firm OPG Securities and others, on the allegation that they colluded with unknown NSE data centre staffers to gain preferential access to the market feed, the Central Bureau of Investigation (CBI) has collected the relevant papers from the SEBI to examine all the related issues.

In its First Information Report (FIR), the agency has alleged that OPG Securities’ Sanjay Gupta, with the help of his brother-in-law Aman Kokrady, managed the NSE data centre staff to get inputs on the switching on time of exchange servers, which helped the firm in being mostly the first to log on to the servers.

It is alleged that the market information was then being passed on to the brokers attached with the co-location facility via TBT system architecture, which gave split-second advantage to the stock broker connecting first to the server over the others.

As noted in its February 2021 order against OPG Securities and others, through an email dated January 4, 2012, an NSE official named Hozefa Poonawala had raised the issues and risks related to the absence of load balancers.

“No follow up action with regards to this email was observed,” said the order. Besides, one Smrati Kaushik had forwarded an email dated January 3, 2012, to some colleagues, which recommended use of load balancer for issues like hardware failure and balancing of loa

Deloitte, in its forensic report submitted to the NSE on December 23, 2016, had also observed: “The absence of load balancers appear to have created advantages for certain members due to manual intervention. In addition, the absence of randomisers on the TBT dissemination servers seem to create an inherent advantage in receiving ticks to members connecting first...”

Even when the NSE introduced the load balancer during October 2012, the CBI alleges that Mr. Gupta — in connivance with the NSE data centre staff — got his firm connected to the exchange’s backup servers, which had “zero load” and therefore provided far better and fast access to the market feed to OPG Securities in comparison to others.

The CBI FIR also alleges that to ensure a favourable report from the SEBI on the inquiry carried out by the Board against OPG Securities, as regards the misuse of TBT architecture, Mr. Gupta had influenced some SEBI official “for which bribe money was exchanged between Sanjay Gupta and some unknown officials of SEBl”. This aspect is also under investigation.

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Printable version | Sep 26, 2022 3:34:35 am |