New Delhi: In a sensational case, the CBI has registered an FIR against a stock broker who allegedly manipulated the National Stock Exchange's (NSE) system for two years to get first access to markets when they opened, officials said.
By manipulating the system, the accused would get access ahead of other brokers by some seconds, which was enough to make a difference in trade, they said.
Sanjay Gupta, the promoter of OPG Security Pvt Ltd, Aman Kokrady his brother-in-law, and Ajay Shah, a data cruncher cum researcher, have been booked by the CBI along with unidentified officials of the NSE and stock market regulator SEBI, who could have connived with the trio to allow the illegal activity to continue for years, they said.
In the high-frequency algorithmic trading in the NSE, an edge of a few seconds to a stock broker in a trade can make a huge difference, the officials said.
The probe agency carried out searches at multiple locations in Delhi, Mumbai and Bengaluru today, they said.
"It is alleged that Sanjay Gupta, the owner and promoter of OPG Security Pvt Ltd abused the server architecture of NSE in criminal conspiracy with unknown officials of NSE.
"The officials.... provided unfair access to OPG Securities Pvt Ltd using the co-location facility during the period 2010-12 that enabled to login first to the exchange server of the stock exchange that helped to get the data before any other broker in the market," the FIR said.
The co-location facility offered by the NSE, allows low latency and fast execution to trading members, officials said.
This setup of server gives a 10:1 speed advantage in comparison to other brokers.
It has emerged that Mr Gupta was the first to login in 90 per cent of cases which prompted murmurs in the stock broker circuit resulting load balancer being introduced by the NSE, the officials said.
Mr Gupta once again managed the data centre staff of NSE to get connected to the backup servers which were with zero load and provided far better and faster access of market feed to OPG Securities in comparison to other brokers, the CBI has alleged.
The probe agency has alleged that he had managed to manipulate SEBI inquiry against the role of OPG Security in the misuse of TBT (tick-by-tick) architecture of servers by paying bribe to the officials of the stock market regulator.
"Gupta also directed his employees to delete some important mails, text messages, logs etc related to co-location facility with the intention of destroying electronic evidence against him and the company," the FIR alleged.
The agency has also detected the role of one Ajay Shah who had allegedly collected NSE trade data in 2005-06 under the garb of doing research, it alleged. He was instrumental in exploitation of NSE TBT architecture.
In this architecture, data was disseminated in a sequential manner whereby a stock broker who connected first to the server of stock exchange received tick, that is market feed before the stock broker who connected later.
Initially, the NSE did not have the system of starting its TBT server at a fixed time every day. Mr Gupta managed to get switching on time of NSE exchange server with the help of insiders.
He had developed an algo software using his research data which was an illegal act, they said.
The agency has also alleged that Gupta, with the help of his brother-in-law, was illegally trading in Dubai, Ghana, Singapore, Hong Kong and China through his company, the officials said.