The Income Tax (I-T) department has searched the premises of former top officials of the National Stock Exchange (NSE), a few brokers and private technology providers in connection with an algorithmic trading case still being uncovered.
The tax authority also searched the premises of the wife of a serving top official, and a research and investing firm in connection with alleged irregularities in the algorithmic trading case.
The official’s wife, I-T sources said, is a director on the board of a Mumbai-based company which allegedly provided technology to a stock broking firm for unfair access during 2012-2014.
The tax searches initiated by the Delhi I-T department began on November 15 and are likely to continue for the next few days. The tax agency has covered at least nine premises in Mumbai alone.
Algorithmic trading or algo in market parlance refers to orders generated at super speed by use of advanced mathematical models that involve automated execution of trade while co-location involves setting up servers on the exchange premises.
It is alleged that some brokers got preferential access through co-location facility at the NSE, early login and ‘dark fiber’ — which can allow a trader split-second faster access to data feed of an exchange. Even a split-second faster access can result in huge gains for a trader.
The Securities and Exchange Board of India (Sebi) is also investigating the NSE algo trading case to ascertain if brokers made unfair gains in connivance with exchange officials.
The allegations of unfair access pertain to a period when NSE used to disseminate price information through a unicast system. In such a system, information is disseminated to one member after another.
Sebi has also issued show-cause notices to NSE and 14 key management personnel as part of its investigation into alleged lapses in high-frequency trading or algorithmic trading offered through NSE’s co-location facility.