The National Stock Exchange (NSE) has suspended trading of Delhi- based technology firm OPG Securities for allegedly exploiting co-location server and gained unfair access while trading on NSE's algorithim trading platform.
The exchange has barred all the segments of OPG Securities including capital market, futures & options, and currency derivatives from September 29 to March 28, 2018.
Confirming the development, NSE spokesperson said: "OPG Securities will be suspended for six months as trading member of all segments of this exchange with immediate effect after observance of necessary formalities and any other prescribed procedural requirements. Communication to this effect has been issued to the Member.
This is the first action taken by the exchange since the NSE co-location matter came into light.
"It was found that OPG were doing first log-ins to the NSE systems through secondary servers (back up servers) which got them faster access to price information, said a source. It was observed that this brokerage was consistently getting maximum number of the first log-ins ahead of the other trading members, he added.
According to the sources, six to seven other brokers are also under scanner and may soon face suspension.
OPG Securities has been under regulatory lens and have faced several enquires from Securities and Exchange Board of India (Sebi) and NSE. Even, forensic audit conducted by Deloitte in the report said that company have benefited from favoured access.
Based on the audit findings, NSE's Disciplinary Action Committee on February 14 had issued a show-cause notice to OPG Securities seeking explanation why it had logged on to the backup server despite the exchange warning.
Early this year, Sebi had also quizzed Sanjay Gupta, the chief executive officer of OPG Securities and visited the brokerage's premises to examine the books of accounts. Regulator is of view that OPG had colluded with certain officers at the NSE to find out the loophole in the co-location facility.
Meanwhile, Sebi has appointed two audit firms - EY and Deloitte India - to conduct a forensic audit in the matter. The firms have been mandated to examine and to ascertain upto what extent brokers and their clients made profit by gaining preferential access to the colo facility. The auditors is looking into the profits of the suspect brokerages and the average turnover increased significantly during 2010- 2014 ( the period when they have got unfair access).
Colocation facilities allow some brokers and institutional traders to buy rack space close to the exchange servers. The proximity improves the latency (speed of execution of the order). The episode of unfair access took place between 2012 and 2014; the exchange has since changed its system at the colo facility after it got multiple complaints from other users of these facilities about some brokers gaming the system.