NSE pays Sebi Rs 643 crore to settle TAP system misuse case

TAP was a software application deployed by NSE in 2008 on the servers of trading members for managing connections and messages (orders/trades) of such members. Trading members, registered with NSE, connected to TAP to establish communication with the NSE trading system.

The settlement applications filed by the Applicants, along with revised settlement terms proposed by them, were placed before the High-Powered Advisory Committee (HPAC) during its meeting held on March 18, 2024. The Panel of WTMs accepted the recommendations of the HPAC to settle the matter on composite payment by NSE (for itself and other Applicants) for an amount of Rs 643 crore.

Further, the panel of WTMs was of the view that the settlement applications be accepted if, in addition to the aforementioned settlement amount, pro-bono community service of at least 14 days during the current financial year was undertaken by all the applicants, except NSE and G.M. Shenoy as a non-monetary settlement term.

Some high-frequency traders allegedly manipulated the TAP platform in 2013 to execute thousands of orders without being detected and crowding out other users. The misuse was detected four years later by the income tax authorities during the investigation of the co-location case involving former NSE CEOs Chitra Ramkrishna and Ravi Narain.

NSE TAP was introduced to monitor the number of orders that a broker sends to the stock exchange so that it could charge them a transaction fee. The TAP sends orders from a number of servers to the stock exchange.

After conclusion of the examination, a show cause notice dated February 28, 2023 was issued to eleven entities by the SEBI. The alleged violations included: NSE did not take remedial measures to prevent/ discourage any possible bypass of TAP, the complaint dated November 20, 2013 and the deficiencies of the TAP system were not brought to the notice of NSE’s Standing Committee on Technology even after coming into effect of SEBI circular dated July 06, 2015 on ‘Cyber Security and Cyber Resilience Framework of Stock Exchanges, Clearing Corporations and Depositories’.

Further, there was alleged delay in appointment of Chief Information Security Officer by NSE, non-implementation of encryption feature in TAP etc in apparent violation of the provisions of SEBI circular dated July 06, 2015.