**NSE Co-Location Scam: CBI Closure Report Accepted by Special Court**
A special court in New Delhi has accepted a closure report from the Central Bureau of Investigation (CBI) concerning a segment of the NSE co-location scam. This case involves ISec Services, a company established by former Mumbai police commissioner Sanjay Pandey, which conducted audits for two stock brokers, SMC Global Securities Ltd and Shaastra Securities Trading Private Limited.
The CBI’s final report indicated that while there were violations of SEBI circulars related to the audits performed by ISec Services, there was insufficient evidence to prove criminal intent among the accused. The investigation did not uncover any complicity from officials at the National Stock Exchange (NSE) or the Securities and Exchange Board of India (SEBI) in allowing the brokers to submit inadequate audit reports.
The CBI initiated the investigation following a referral from the Enforcement Directorate, which highlighted several breaches of SEBI regulations by ISec Services during system audits of brokers engaged in algorithmic trading via the co-location facility. This facility permitted brokers to place their servers within the NSE’s data center for a fee, granting them quicker access to market data.
The alleged misuse of this facility is under investigation in a separate case, which has also led to the arrest of former NSE Managing Director and CEO Chitra Ramkrishna, who has since been released on bail. The FIR regarding the audit discrepancies claimed that ISec Services conducted audits of the two high-risk brokers in a fraudulent manner during the co-location scam.
Sanjay Pandey founded ISec Services in 2001 and stepped down as its director in May 2006, with his family members subsequently taking over the company. The CBI had previously submitted a closure report in 2023, which was rejected by the special court, prompting further investigation. The recent closure report noted that while the stock brokers conspired with ISec to evade third-party audits to hide their irregularities, the lack of evidence made it impossible to definitively ascertain the nature of any unlawful activities.
The CBI concluded that there was insufficient prosecutable evidence to demonstrate that the trading system was compromised due to audit lapses, especially in the absence of any market abuse indicators such as circular trading or pump-and-dump schemes. The report also criticized the NSE for failing to implement a robust verification mechanism for audit reports and for not adhering strictly to SEBI guidelines, resulting in audits that were merely a formality.
**FAQ**
**What was the outcome of the CBI’s investigation into the NSE co-location scam?**
The CBI’s investigation led to a closure report being accepted by a special court, indicating that while there were violations of SEBI regulations, there was insufficient evidence to establish criminal intent among the accused parties.
