Violation: KSE probes staff access to trading data

Senior officials accused of using sensitive data for financial gains.

ISLAMABAD: The Karachi Stock Exchange (KSE) is investigating whether staff profited from years of unauthorised access to real-time trading data in a market that has rocketed more than 450% since 2009.

The potential breach came to light after two whistleblowers accused senior staff of accessing sensitive trading data through a secure network and accessing emails without authority, according to confidential documents seen by Reuters.



Some board members expressed concern the access could have allowed the staff to benefit because they knew of individual buy and sell orders, the documents show.

Any suggestion that staff may have illegally profited from having access to real-time market data stands to deal a blow to the KSE, where about a third of shares freely available to investors are held by foreigners.

In the first public acknowledgement of the potential breach, KSE Managing Director Nadeem Naqvi told Reuters an investigation was under way into whether any individuals profited.

“My primary focus from day one has been data security,” he said. “The integrity of the exchange depends on this.”

Last year, the KSE 100 stock index rose 38% in dollar terms, making it the 10th best performing stock market in the world.

The index soared to a record of more than 27,200 points in January from less than 5,000 points in early 2009.

Investigation

Consultancy Sidat Hyder Morshed Associates, which was asked to investigate by the KSE, said in a report in December that senior IT staff was able to read staff emails and monitor trades conducted through secure systems in real time.

These members of staff could monitor individual unique identification numbers that track trading activity.

The report also noted that former managing director, Adnan Afridi, had access to such trading data. He said this was because market surveillance teams reported to him.



“There was no impropriety,” Afridi told Reuters. “A feed was available to my computer so I could see if there was anything we needed to take action on.”

Afridi noted that since reforms were enacted last year, the managing director of the KSE is no longer responsible for market surveillance.

The consultancy did not investigate whether the staff had manipulated the market. Instead, it was asked to identify the whistleblowers and authenticate their claims.

Naqvi said he was now investigating whether the staff had profited from the data. His team is expected to issue a report on its findings to the KSE board in two weeks, he said.

The consultancy will also issue another report before March with recommendations for security upgrades of KSE systems, he said.

The KSE did not retain deleted emails and did not log who was accessing emails or trading data, the consultancy’s report said, making it hard to find evidence of manipulation.

The report found that staff had apparently been tipped off to the investigation and may have deleted files.

Sidat Hyder Morshed Associates declined to comment.

Concerns

Minutes of KSE board meetings show that members were concerned by the potential breach. Members pointed out the dangers of such a breach and the potential for front-running.

Board members also expressed concerns that such breaches could have led to the 2008 stock market crash, which wiped out two-thirds of the value of the stock market.

The minutes show that many staff had their access to secure systems revoked, outside consultants were brought in to strengthen the security of the KSE systems and the whistleblowers were thanked, not disciplined.

“I do not believe in letting bygones be bygones,” said Naqvi. “If people exploited the system, we will find them.”

Published in The Express Tribune, February 7^th, 2014.

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