Lok Sabha Question No. 1082 (UNSTARRED), answered on 2019-02-08
Subject: Forensic Audits of Brokerage Firms
Ministry: FINANCE
Asked by: KUNWAR HARIBANSH SINGH, VIJAY KUMAR S.R., S. RAJENDRAN, GAJANAN CHANDRAKANT KIRTIKAR, T. RADHAKRISHNAN, SUDHEER GUPTA

Government of India Ministry of Finance Department of Economic Affairs

## LOK SABHA UNSTARRED QUESTION NO. 1082 TO BE ANSWERED ON FRIDAY, FEBRUARY 8, 2019/MAGHA

## FORENSIC\_AUDITS OF\_BROKERAGE FRMS

## QUESTION

1082 KUNWAR HARIBANSH SINGH SHRI S. RAJENDRAN SHRI GAJANAN KIRTIKAR SHRI T. RADHAKRISHNAN SHRI SUDHEER GUPTA

Will the Minister of FINANCE be pleased to state:

- (a) whether the Securities and Exchange Board of India (SEBI) had commissioned
- firms to carry out forensic audits of brokerage firms who have three servers of National Stock gained preferential access to Exchange of India Limited (NSE) and if the details thereof; auditing
- report;
- c) the number of brokerage firms found involved in getting preferential d) the modus-operandi adopted by such firms; and broking
- the SO, details of the

access to NSE server;

- (e) the steps taken/being taken by the NSE to strengthen its infrastructure to avoid such type of malpractices by brokerage firms in future with the action taken/ the SEBI against such proposed to be taken by guilty firms? along

## ANSWER

## MINISTER OF STATE IN THE MINISTRY OF FINANCE (SHRI PON. RADHAKRISHNAN)

(2): Securities and Exchange Board of India (SEBI) appointed two audit firms viz. Deloitte Touche LLP (EY) for carrying out forensic audit of the firms which had, inter   alia,   alleged to have   gained preferential access to servers Young broking

(6): The two audit firms. namely Deloitte and EY, have submitted their reports to SEBI The reports brought out that one of the firms was consistently disseminating TBT data feed of NSE, logging in first to the servers The reports also observed that few firms were found t0 be consistently secondary server without any valid logging on to the data feed. reasons, gaining advantage in terms of receipt of TBT have broking thereby broking thereby

Tohmatsu India LLP (Deloitte) and Ernest and disseminating tick-by-tick (TBT) data feed at National Stock Exchange of India Limited (NSE).

## 19,1940 (SAKA)

(c): Nine brokerage firms have been found t0 be involved in getting preferential access to NSE server.

- (d): Same as to in part (b) above: replied

(e): NSE has launched Multicast Tick-by-Tick (MTBT) as a protocol for TBT data dissemination from 2014. As part of this protocol, the network layer efficiently disseminates the data to all the members at the same time which ensures that the Multicast feed is disseminated in a reliable manner from NSE. Further; to improve its systems and processes from time to time; NSE developed and implemented   policies and standard operating   procedures to monitor and regulate member connectivity, policies for allocation of server IPs, load balancing, access to recovery servers, suitable systems to maintain of server start-times, adequate systems to monitor and analyze server data and appropriate archival policies with regard to MTBT system architecture: May. logs

Enforcement actions have been initiated by SEBI 1 broking firm; inter alia, for consistently logging in first to the servers disseminating TBT data feed of NSE and consistently logging on to the secondary server and 2 broking firms, inter alia, for consistently logging on to the secondary server: Also, administrative warnings have been issued to another 6 broking firms in this Further; NSE has; inter alia. been advised to carry out detailed scrutiny/ examination of all such broking firms; which had connected to the secondary servers, apart from the broking firms already covered by SEBL against regard.

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