Sebi Thursday said it has initiated enforcement action against various entities in the alleged violations of norms by the National Stock Exchange (NSE) in algorithm trading.
“We have received the NSE investigation report in the co-location case and have initiated enforcement actions,” said Sebi Chairman Ajay Tyagi. He said that in the next few days, the regulator will complete enforcement action against the entities involved in the violation. Tyagi also said its investigation in the co-location case has nothing to do with the proposed initial public offer of NSE.
The NSE is facing allegations that some brokers got preferential access to the trading system through the co-location facility (where brokers can buy “rack space” for their servers) at the stock exchange, early login and “dark fibre”, which can allow a trader split-second faster access to the data feed of the exchange. Even this split-second faster access is considered capable of bringing huge gains to a trader.
The allegations of unfair access were first made by a whistleblower in January 2015. The whistleblower wrote to securities market regulator Sebi, alleging that a few brokers were able to log into the NSE system with better hardware specifications while engaged in algorithmic trading, to their unfair advantage. Algorithmic trading refers to orders generated at superfast speed by the use of advanced mathematical models that involve automated execution of trade.
In March, the NSE said Sebi had returned its consent application in the case due to the ongoing investigation. The exchange’s Rs 10,000-crore IPO has been delayed because of the probe and Sebi had issued show-cause notices to several individuals and the exchange while also probing the role of some brokers.