Sebi fines NSE, 2 others in co-location case

In the high profile co-location case, markets regulator Sebi on Wednesday imposed a penalty of Rs 1 crore on the NSE for failing to provide a level-playing field for trading members subscribing to its tick-by-tick (TBT) data feed system.

In addition, the regulator levied a fine of Rs 25 lakh each on NSE's former managing directors and chief executive officers Chitra Ramakrishna and Ravi Narain.

Alleged lapses in high-frequency trading offered through NSE's co-location facility came under the scanner of the watchdog after a complaint was filed in 2015.

The National Stock Exchange of India (NSE) co-location facility allows stock brokers to take on rent specific racks and co-locate their servers and systems within the exchange premises.

The primary objective of co-location services of the NSE is to reduce latency for connectivity to the exchange's trading systems for Direct Market Access (DMA), algo trading and Smart Order Routing (SOR).

In its 96-page order, Sebi said that unequal access was apparent at different stages of the technology process and NSE as a stock exchange failed to ensure a level-playing field for trading members subscribing to its TBT data feed system.

Tick-by-Tick (TBT) data feed provides information regarding every change in the order book.

According to the regulator, many trading members had repeatedly resorted to accessing the secondary server without any checks and balances and actions on the part of the first- level regulator except for certain emails or advisories.

The NSE flouted the principles underlying the conduct of business of a stock exchange, pertaining to fair and equitable access to information.

"While implementing TBT dissemination architecture at NSE, the essence of 'fair and equitable access' was not attempted to be imbibed into the various stages of implementation of the technology and only 'safety and reliability' was taken into account," Sebi said.

By doing so, the exchange violated the provisions of securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations or  SECC norms.

The NSE has failed to comply with the provisions of SECC Regulations in letter and spirit and Ramakrishna and Narain are vicariously liable for the acts of omissions/ commissions committed by the exchange during the investigation period, Sebi said.

Noting that the violations in this case are serious in nature, Sebi said such violation would compromise the regulatory framework and should be dealt with by imposing monetary penalty on the entities so as to send an effective message to the market participants as a whole.

Accordingly, the Securities and Exchange Board of India (Sebi) levied fine on the exchange and its former officials.

Earlier in April 2019, the regulator had directed the exchange to disgorge  profits worth Rs 625 crore in the matter and had imposed a six-month ban on launching  new derivative products.

Photograph: Shailesh Andrade/Reuters