NSE co-location scam: HC issues notices to SEBI, CBI, 4 others

Claiming that the CBI probe into the alleged 4-year-old multi-crore National Stock Exchange (NSE) Co-location scam is progressing slowly, the Chennai Financial Markets and Accountability (CFMA) has approached the Madras High Court seeking its intervention.

The CFMA submitted that it was shocking to know that the Securities and Exchange Board of India had absolved NSE and its officials of all allegations under the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations, 2003.

"When there is a serious fraud and misdemeanours committed by top officials of NSE who were acting hand in glove with certain trade members towards manipulating the market and providing unfair trade access, NSE cannot be allowed to go scotfree," the CFMA, a registered society, contended.

Recording the submissions, a division bench of Justices M Sathyanarayanan and N Seshasayee ordered notices to the NSE, SEBI, CBI, Enforcement Directorate (ED), Serious Fraud Investigation Office (SFIO) and the Financial Intelligence Unit (FIU) returnable by November 11.

The co-location facility allowed brokers to take on rent specific racks and co-locate their servers and systems within the exchange premises.

The primary objective of co-location services of the NSE was to reduce latency for connectivity to its trading systems for direct market access, algo-trading and smart order routing.

According to CFMA, NSE had given preferentialaccess to certain trade members to access its trade data at the cost of the entire securities market comprising one of the biggest financial frauds ever taken place.

The petition alleged that NSE has violated the fundamental objective inside trading and thereby in the process given illegal preferential access to certain trade members to access NSE trade data at the cost of entire securities market.

The CFMA further alleged that the scam has tarnished the reputation of a major market infrastructure institution and severely challenged integrity of the securities market.

"Millions of investors, mostly retail investors, would have suffered huge losses due to relatively delayed dissemination of order-book data to them and in the absence of the awareness that some select trade members were able to access the order book data ahead of them," it said.

Last month, the Securities Appellate Tribunal (SAT) had asked the NSE and its ex-officials, including the former CEO Chitra Ramkrishna, to file their rejoinders within four weeks in their plea against SEBI that penalised them in the co-location case.

The co-location case dates back to 2015 when a whistleblower wrote to SEBI alleging that the NSE was giving a few high-frequency traders and brokers preferential access to its trading platform, which benefited both the parties at the cost of others.

Alleged lapses in high-frequency trading offered through NSE's co-location facility came under the scanner of the watchdog after a complaint was filed in 2015.