SEBI bars NSE from securities market for 6 months: Co-Location Case

The Market regulator Securities and Exchange Board of India (SEBI) has barred National Stock Exchange (NSE) from accessing the securities market for six months and also imposed a fine of ₹1,000 crore on NSE in co-location case.

Co-Location Case

  • Co-location refers to system wherein a broker’s server is kept in the exchange premises to reduce latency (as it directly influences the amount of time trader takes to interact with market), or delay in computing terms, while executing trades.

 

  • In 2015, SEBI received complaints against NSE in which it was alleged that the system used by NSE to disseminate data through co-location facilities was partial, as it allowed users to get information before others and thereby created an information asymmetry between users.

SEBI’s verdict in Co-Location Case:

  • As inspected under the SEBI ‘Prohibition of Fraudulent and Unfair Trade Practices rules’ (PFUTP) Regulations, NSE was found guilty of committing fraudulent and unfair trade practice and it also did not exercised requisite due diligence while putting in place the TBT (tick-by-tick data feed) architecture, thus affecting market fairness.
  • SEBI has barred the NSE from accessing the securities market for six months as its actions.
  • It has fined NSE for almost ₹1,000 crore (i.e. ₹89 crore plus 12% interest) from 1 April 2014 for its alleged failure to exercise proper due diligence while offering co-location facility.
  • The disgorgement amount is required to deposited in Investor Protection and Education Fund (IPEF).
  • It also directed former and current top employees in the management of exchange to not hold any position in a stock exchange for a period of two to three years.

Note: NSE has the largest market share in equity segment and almost a monopoly in equity derivatives.

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