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What is NSE Co-location case?
The National Stock Exchange (NSE) launched the co-location facilities in 2009 to permit traders and brokers to establish their IT servers within the premises of NSE's co-location data centres with low latency connectivity to the exchange in return for a fee.
Simply put, market participants, using co-location facilities, could have faster access to the stock prices' information broadcast by the bourse's trading system, resulting in faster execution of trades.
What is NSE co-location case?
To begin with, the case dates back to 2015 when a whistleblower filed a complaint with the Securities and Exchange Board of India (Sebi) alleging irregularities concerning NSE's co-location facilities.
According to the complaint, a few traders in alliance with some NSE officials breached the co-location guidelines. It was alleged that the stock exchange indulged in practices of granting preferential market access to select brokers that resulted in market manipulation and artificial information asymmetry.
At that time, the NSE was using the tick-by-tick (TBT) server protocol to disseminate data to its members. This market architecture was prone to market violations, according to investigation findings by the Technical Advisory Committee (TAC) of Sebi and Deloitte India.
A whistleblower wrote to the market regulator alleging that some brokers, engaged in algorithmic trading, could log into the NSE systems with hardware specifications allowing them split-second faster access to the data feed of the exchange.
It also said that the NSE had allowed non-empanelled Internet Service Providers (ISP) to lay fibre cables on its premises for a select set of traders who were reaping huge amounts of profits.
The NSE has been facing accusations and monetary implications for several years after the scam was exposed.
The NSE co-location case is under investigation by the Sebi, Central Bureau of Investigation (CBI) and Income-tax Department (I-T dept). The authorities concerned are probing the involvement of NSE's former and current brokerages and executives.
Has anybody been penalised?
The SEBI has banned OPG Securities from the market for five years and asked it to pay Rs 15.57 crore by way of disgorgement of illegal gains. The case is now pending with SAT.