The Income-Tax (I-T) Department on Thursday conducted searches at offices of two National Stock Exchange (NSE)-linked brokers as part of its ongoing investigation of entities and individuals allegedly involved in the high-profile co-location case.
According to the I-T officials, the searches were conducted in Delhi and Mumbai and the taxmen are believed to have recovered a number of documents and computer peripherals till now.
The co-location case centres around the NSE giving preferential access to certain brokerages to its servers that ran high-speed algorithms which allowed these firms to execute trades of shares earlier than other investors, thus giving them a hugely-profitable edge.
Sources claimed that the action was based on "actionable inputs" suggesting tax evasion by a few entities linked to the NSE as well as the co-location issue. "In the NSE's co-location case, certain brokers, including OPG Securities, operating on its trading platform allegedly got preferential access to servers of the exchange. A co-location facility provides early login and faster access to data feed of the exchange," an I-T department official said.
Even a split-second faster access can yield huge gains for a trader."
Queries sent to the NSE and OPG Securities remained unanswered.
The co-location case is also being investigated by the Securities and Exchange Board of India (SEBI); the NSE earlier this week submitted a forensic audit of the issue prepared by Ernst and Young to the markets regulator.
EY was entrusted with carrying out the forensic audit into cash markets, currency derivatives, and interest rate futures platform.
SEBI had issued show-cause notices to NSE and 14 key management personnel, including former managing directors Chitra Ramakrishna and Ravi Narain, as part of its investigation into alleged lapses in high-frequency trading or algorithmic trading offered through NSE's co- location facility. Ramakrishna resigned in December 2016, while Narain, who was the vice-chairman, quit on June 2.
NSE had earlier engaged Deloitte for a forensic audit of its equity derivatives platform.
In July, the NSE had approached SEBI to settle the case through consent mechanism, but the regulator is yet to respond.
As a result of the controversies, NSE's public listing plans have been delayed, even as rival Bombay Stock Exchange had its initial public offering in January this year.
