The Central Bureau of Investigation (CBI) on Tuesday questioned N Murlidaran, Executive Vice Chairman of NSEIT, in Mumbai as part of its probe into irregularities in NSE’s colocation facility, sources told CNBCTV18.com.

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NSEIT is a 100 percent subsidiary of NSE. Murlidaran was previously MD and CEO of NSEIT and in charge of overseeing operations at the colocation facility.

He had been directly reporting to Chitra Ramakrishna and handled software development and design during the period NSE had started offering the colocation facility to its trading members.

In her response to the SEBI show-cause notice on the colocation controversy, NSE’s former CEOs Ravi Narain and Chitra had gone with the advice of functional heads.

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The testimonies of NSE’s key IT officials will be crucial to decoding if the top brass of NSE was aware of the irregularities at the colocation facility or if it was a case of some lower levels employees subverting the system for personal gains.

At the heart of the NSE colocation controversy are allegations that the NSE favoured certain brokers by giving them faster access to price feeds, and thus allowing them to execute trades ahead of the rest of the market.

Murlidaran was among the 14 IT officials at NSE who had been served show-cause notices by SEBI. The market regulator did not take any action against the officials saying there was not ‘sufficient material available on record’ to support the allegations made against them.

Murlidaran has been with the NSE since 2004 and is part of the core leadership team.

There were two parts to the NSE colocation scam. One was the flawed technology architecture that disseminated the tick by tick (TBT) price data in a way that the trading member logging in first onto the colocation servers would have an advantage compared to other trading members. Two, the brokers managed to log in ahead of others by figuring out which servers would be started early, and regularly got on to the servers which had the least load. This, it was alleged, was by conniving with some officials of the exchange.

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SEBI was unable to prove the involvement of any IT staffer in helping some brokers get an unfair advantage.

Even after NSE tried to fix the problem by introducing a randomizer that automatically routed orders to the least crowded servers, some brokers still managed to game the system by regularly logging on to back up servers. Interestingly, some brokers were allowed to access the secondary servers while others were warned from doing so.

SEBI was unable to take action on this count because the exchange did not have clearly defined guidelines on brokers accessing the backup server.

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