Sebi had previously issued notices to 14 individuals and entities and the scope of probe has widened considerably since then amid concerns of possible illicit fund flows involving certain market entities, according to official sources.
While the government is keeping a close tab on the developments related to the co-location case at the country's largest exchange few years ago, multiple agencies, including the Income Tax Department, are moving ahead with their respective probes.
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The matter of some brokers allegedly getting preferential access in the high frequency trading system at the National Stock Exchange (NSE) came to the notice of markets regulator Sebi through a whistleblower.
Sources said the Serious Fraud Investigation Office (SFIO) might be asked to look into the alleged violations of companies law as the possibility of substantial illicit fund flows among certain entities in the co-location case is being suspected, sources said.
Since the role of some former and current NSE officials is also under the scanner, an SFIO investigation could help in ascertaining possible violations in terms of corporate governance and companies law framework, they added.
According to the sources, it is also suspected that certain brokers might have made abnormal profits by way of preferential access to the exchange's servers.
The case relates to some brokers allegedly getting preferential access through co-location facility at the NSE, early login and dark fibre, which can allow a trader a split- second faster access to data feed of an exchange. A split- second faster access can also result in huge gains for a trader.
Besides the Securities and Exchange Board of India (Sebi), the Reserve Bank of India (RBI), the Income Tax Department and the Central Bureau of Investigation (CBI) are looking into the matter.
More than two years after the case came under the regulatory lens, many entities are under the scanner and the scope of the overall probe is getting widened, sources said.
Last month, the Income Tax Department conducted searches on two NSE-linked brokers in connection with its tax evasion probe against entities and individuals suspected to be involved in the co-location case.
Earlier this year, the CBI had sought details about the case from the exchange while the RBI has been looking at whether the alleged lapses in the bourse's system architecture was also related to trading in exchange traded currency and interest rate derivatives.
The exchange, last month, submitted the forensic audit report on the issue, prepared by auditing firm EY, to the markets regulator.
EY was entrusted with carrying out the forensic audit into cash markets, currency derivative and interest rate futures platform.
The country's largest bourse had earlier engaged Deloitte for a forensic audit of its equity derivatives platform.
In July, the NSE had approached the Sebi to settle the case through consent mechanism and a decision from the regulator is yet to come.
The NSE's much-awaited initial share sale has also been delayed on account of the co-location case.