The Income Tax department is conducting search and seizure operations at the premises of the NSE officials and brokers whose name figure in the co-location server case.

The searches are going on since Wednesday evening to uncover alleged illegal gratification received by officials of the state-run National Stock Exchange and a few stock brokers who were granted unfair access to the exchange’s high frequency trading server facilitating these traders to access the price feeds ahead of the other members of the broking community.

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IT investigators swung into action as soon as the market regulator Securities and Exchange Board of India (SEBI) received the forensic audit report by two firms Deloitte Touche Tohmatsu India and EY India. These auditors were asked by SEBI to probe irregularities in algorithmic trading system and identify the NSE officials and brokers involved in the alleged massive fraud. According to Dalal Street buzz, this had going on for years. A Deloitte report of 12 May this year found out that the favoured brokers had accessed high frequency network on 357 of 364 trading days between December 2012 and May 2014. Market sources say the raids which are likely to continue for a couple of days were cleared by top officials in the finance ministry.

Among the NSE officials who were being searched are two former Managing Directors Ravi Narain and Chitra Ramkrishna. Both quit the exchange a few months ago after SEBI ordered forensic audit. A broking firm OPG Securities and its promoter Sanjay Gupta are also under the IT scanner. The audit report says OPG Securities used to get first access to the high frequency algo system which gave it unfair advantage over other brokerages. The audit report has apparently identified 14 NSE officials and brokers who were complicit in these alleged irregularities.

The lid was blown off by a whistleblower, allegedly an insider, who wrote to the market regulator in January 2015 passing on the inputs gathered by him. SEBI subsequently issued show case notices to more than a dozen NSE officials. NSE submitted its audit report prepared by EY and Indian Business School to the market regulator pertaining to details of cash market, currency derivatives and interest rate futures.

Having ordered probe into alleged algo-trading system fraud, the market regulator has kept clearance to NSE’s  ambitious IPO on hold. The permission is pending for more than a year while the rival Bombay Stock Exchange not only came out with its IPO but also listed it at premium on NSE. SEBI has consistently refused to entertain NSE’s pleas to okay its IPO which would be worth `45,000 crore by valuation.