SEBI writes to NSE over possible undue favour to some brokers
Published: Sep 22, 2016
By TIOLCORP News Service
NEW DELHI, SEPT 22, 2016: THE market regulator has asked the National Stock Exchange to investigate the possible collusion of its officials with brokers that may have led to breaches of fair access norms by providing unfairly preferential treatment to some. That could make things difficult for India's biggest stock exchange as it prepares for a much-anticipated initial public offering.
The Securities and Exchange Board of India (Sebi) wrote to NSE Chairman Ashok Chawla in the wake of findings by an expert committee on the practice of colocation, or the placement of servers belonging to brokerages adjacent to those of the exchange for a fee to give them an advantage in terms of speed.
In the interim, Sebi said all revenue stemming from the practice, including from fibre connectivity between brokers' colocation facilities and their offices, should be paid into an escrow account.
The regulator said that the NSE board should immediately initiate an independent examination (including forensic investigation by an external agency) of all the concerns highlighted by the Sebi expert committee in its report alleging lack of process that allowed this to happen and collusion if any and fix accountability for the aforesaid breaches covering NSE and stock brokers, vendors and outsourced entities involved in the issue.
The Securities and Exchange Board of India expert committee had actually raised the matter with the board of the exchange at a meeting on July 7, citing possible breaches of fair-access norms that involved some brokers gaining an advantage.
This included preferential access that allowed brokers to log in to multiple servers through multiple access points.
The expert committee had also said that the exchange's architecture in relation to the dissemination of 'tick-by-tick' data through transmission control was prone to manipulation and market abuse.
Sebi had first written to the stock exchange on the issue on March 29. NSE responded to these letters on May 12 and June 29. This was followed by the expert committee's findings being handed over to the NSE board on July 7.
