SEBI confirms that it will appoint forensic auditor in NSE co-location case

The Securities and Exchange Board of India (SEBI) said on Wednesday that it will appoint a forensic auditor in the National Stock Exchange co-location case to determine the profits made by stock brokers, clients and software providers.

NSE is being subjected to another forensic audit as the regulator feels that Deloitte did not investigate in detail the collusion between employees and brokers, SEBI Chairman Ajay Tyagi told reporters after a board meeting on Wednesday.

"Deloitte did not go in-depth on the connivance issue," said Tyagi. "We are examining if unfair gains were made by brokers. It needs to be done comprehensively. We are personally engaging a forensic auditor and are in the process of appointing (the auditor)."

For the previous audit, SEBI had asked the NSE board to make the appointment on its own.

Moneycontrol was the first to report that SEBI is in the process of appointing a forensic auditor in the case.

Sources had told Moneycontrol that the regulator has initiated comprehensive investigation of NSE employees, brokers and any other entities seen to be involved in the case that relates to giving preferential access to some of the exchange’s clients.

The forensic auditor will also investigate brokers who were named in report of the technical advisory committee and in Deloitte’s report.

The regulator has already captured data and e-mail records of these brokers, and is analysing these records, dating from a period of 2010 to 2015. SEBI is also investigating software providers and clients of these brokers.

In a letter to the SEBI Chairman, MP Kirit Somaiya had claimed that one of the brokers made a Rs 1600 crore profit due to this preferential access in co-location.

The Managing Director of an arbitrage firm based in a Mumbai suburb told Moneycontrol: "Two dozen brokers made a profit of at least Rs 2 crore a day profit owing to preferential access." He added that an independent forensic audit is needed in the matter.

He wrote several letters to the regulator in 2014, but did not receive a response.

SEBI is currently examining the replies of NSE and 14 key management personnel at the exchange.

After the full investigation is completed, SEBI will decide on allowing consent mechanism in this case.

A former SEBI official said: “This is a severe case. This new forensic audit under the regulator purview will take out the exact picture. The terms of reference were made out to Deloitte during the tenure of the former SEBI chairman."