Sebi calls meeting with NSE over 'unfair access'

The National Stock Exchange has issued a clarification on this report. Please read it at the end.

The Securities and Exchange Board of India (Sebi) has called for a meeting on Friday with the National Stock Exchange (NSE) over the ‘dark fibre’ and ‘unfair access’ controversy, said people in the know.

There have been allegations against NSE that some traders on its platform gained unfair access to market data and trading systems. Also, a whistleblower has alleged the use of so-called ‘dark fibre’ connectivity by some of its members.

Sources in exchange said the meeting will have new NSE chairman Ashok Chawla and Sebi chief U K Sinha, where the former will present the market regulator a report on the alleged lapses.

“We are not aware of any such meeting. In any case, we do not want to comment on our engagements with the regulator. As we have clarified earlier, there was no violation ever on the issues indicated,” an NSE spokesperson said in an e-mail response to a Business Standard query on the matter.

Dark fibre refers to a dedicated communication link between two entities. Such technology is devoid of traffic and is used for fast communication. Last year, a Singapore-based whistleblower had written letters to Sebi, alleging manipulation and use of dark fibre at NSE.

“NSE has been asked to furnish information about its system, order counts, co-location servers, and surveillance data,” said a source.

Earlier this year, a Sebi panel had recommended action against NSE after evidence that some traders had gained unfair access to market data and trading systems. Its technical advisory committee (TAC) had also asked Sebi to probe links between NSE officials and one OPG Securities.

BUMPS IN HIGH-SPEED TRADE

• Jan 2015: Whistleblower writes first letter to Sebi alleging manipulation in the NSE co-location centre
• Aug 2015: Second letter mentions steps to be taken by Sebi to prove manipulation
• October 2015: Whistleblower writes about ‘dark fibre’ links between BSE and NSE
• Nov 2015: Joint secretary of financial markets writes to Sebi chairman on the matter
• Dec 2015: In reply, Sebi says fact-finding underway; matter to be discussed by technical advisory committee
• March 2016: Technical advisory committee  gives its report, notes that NSE had violated norms of fair access and allowed some brokers to benefit
• April’ 2016: NSE (National Stock Exchange) denies allegation of allowing unfair practices for brokers

The TAC report in March had said: "The available data was examined and the report conclusively shows that a broker called OPG Securities logged in consistently to the servers with better hardware specifications." The committee said the bourse had not provided adequate details on the issue.

Those in the sector say Chawla’s past record and credibility will help NSE's case. A 1973-batch Indian Administrative Service officer, he was credited with addressing several cartelisation and price manipulation cases as head of the Competition Commission of India.

Meanwhile, Sebi is also in the process of finalising rules on algorithmic or high frequency trades. The aim is to ensure a level field between small and large investors. NSE is also likely to discuss the issue of self-listing with the Sebi chairman.

CLARIFICATION
The National Stock Exchange has clarified that Sebi did not call the NSE chairman over the issues mentioned in the report. Nor has any such meeting been scheduled between the two. We stand corrected.