After NSE, MCX to subject itself to a third-party audit

After NSE, MCX board decides to undergo third-party audit of its trading systems following a letter from a whistleblower to Sebi


As per the whistleblower letter, the dark fibre technology of vendors is being used by select brokers for faster access to MCX trading systems. Photo: Bloomberg
As per the whistleblower letter, the dark fibre technology of vendors is being used by select brokers for faster access to MCX trading systems. Photo: Bloomberg

Mumbai: The board of Multi-Commodity Exchange (MCX) has decided to undergo a third-party audit of its trading systems following a letter from a whistleblower to capital markets regulator Securities and Exchange Board of India (Sebi), said two people with direct knowledge of the matter.

“As a good governance practice, the MCX Board advised the management that it should carry out a validation (or an audit) by a third party of its trading and information technology system,” said the first person, on the condition of anonymity.

The second person, who also didn’t want to be named, said this is not directed by Sebi but just a prudent measure.

An MCX spokesperson declined to comment.

The allegations by the whistleblower (the same one who had flagged a similar issue at NSE) against commodity exchanges pertain to the so-called “dark fibre” issue. It was first reported by Moneylife on 14 March.

Dark fibre refers to a dedicated communication line through which messages travel faster than regular lines because of the absence of other traffic. There is nothing illegal about using such faster connectivity infrastructure.

As per the whistleblower letter, the dark fibre technology of vendors is being used by select brokers for faster access to MCX trading systems. The brokerages did this while accessing the proximity hosting services of the exchange.

Unlike equity exchanges, in commodity exchanges brokers are not allowed, under Sebi norms, to place their servers in the exchange premises. The exchanges provide proximity hosting instead, the ability to place servers in close proximity of the exchange.

The whistleblower, in his previous letters, had levelled allegations against NSE, saying that its systems were prone to manipulation and that it allowed for preferential access to certain brokers.

These allegations were later verified by Sebi and a Sebi-commissioned forensic audit of NSE’s systems by Deloitte India.

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