Premium| Listen to this article |
MUMBAI: The Enforcement Directorate (ED), which is investigating the case of alleged money laundering in the National Stock Exchange of India (NSE) co-location case, initiated a search operation at 10-15 locations across Delhi and Gurgaon on Friday morning.
“It is a broad-spectrum search operation being conducted on all brokers named in the ISB report," a person with direct knowledge of the matter said. "It is to ascertain the financial gains and money trail."
On 30 March, Mint had reported the findings of a report by Indian School of Business (ISB), Hyderabad, and that they were at the heart of the probe being conducted by the Central Bureau of Investigation (CBI) and the Securities and Exchange Board of India (Sebi).
The ISB report listed 30 brokers and their trading profits between 2010-14, the period NSE systems were found to be unfair in a Securities and Exchange Board of India (Sebi) order of April 2019. In its order, Sebi found that NSE systems during that period were prone to misuse and manipulation.
Submitted in November 2017, the ISB report analysed “any abnormal economic or financial profits made by logging in first" by members who were co-located at NSE. It pegged the total so-called profit made by these 30 brokers from trading at ₹2,582 crore.
Between 2010 and 2014, NSE used to transmit market information to brokers co-located in exchange premises through the so-called unicast system. Under the unicast system, data packets are sent to destination computers of the brokers one by one, with those connecting first getting preference or first login advantage over others. Many members logged-in first by getting unfair access to secondary servers. The report also catalogs the number of times members access NSE systems through the uncrowded secondary servers.
A whistleblower pointed out the flaw in the system in January 2015. Following the complaint, NSE moved to a multicast system that simultaneously broadcasts data to all co-located brokers.
According to the report, ISB’s scope was to find monetary gains made by the 17 members in the Deloitte report. These are the members who had allegedly exploited NSE systems for early log-in advantage. NSE had then given ISB a list of another 13 members to analyse.
These brokers include some leading algo or high-frequency traders, foreign and domestic brokerages.
ED had registered a money laundering case in 2018 following the CBI FIR, and this is the first large scale search by the investigative agency in this case.
Download the App to get 14 days of unlimited access to Mint Premium absolutely free!