Street Food: Bourses asked to be fair in matters of access to data

In a late evening circular on Friday, the Securities and Exchange Board of India (Sebi) asked exchanges to take a series of steps to ensure equality in access to data. 

This comes some weeks after the National Stock Exchange, in its draft prospectus for an Initial Public Offer of equity, talked about an independent agency’s report on the same subject.  

“The independent agency’s analysis highlighted trends for certain periods where a few stockbrokers appear to be the first to connect to specific servers significantly more often than others. The TCP-IP (Transmission control protocol-Internet protocol)-based TBT (Tick by Tick) system architecture indicated that data was disseminated in a sequential manner, whereby the broker who connected first to the server received ticks (market feed) before the broker who connected later,” the Deloitte report, given to Sebi on December 23, had found.

It also recorded various related findings about access to data. Without referring to this report in the latest circular, Sebi has asked the exchanges to deploy tools for monitoring the service quality of data feeds. Also, mechanisms to manage load across systems disseminating data, to ensure consistent response time for all market participants. Plus, clarity in all communication on all technology matters by precisely providing all necessary details “related to the facility/service concerned, including information on features, benefits, risks, etc, particularly for participants who have opted for co-location facility”.

The regulator has also asked the exchanges for a comprehensive policy document on providing stock market related data to participants in a fair and transparent manner, “irrespective of the type of mechanism used by the stock exchanges for broadcasting of data”.

In 2013, it had told the bourses to synchronise their system clocks with the atomic clock before the start of the market such that the former had a precision of at least one microsecond and accuracy of at least plus or minus one millisecond. Now, the regulator wants even the clocks of the servers and other systems to be synchronised.

It is a bit amusing to know that half a decade after these systems were introduced and lakhs of crores of rupees worth of trades later, such fundamental aspects are being now thought of. And, while the regulator has sought comprehensive policy and transparency of systems from the regulated entity, Sebi should apply these requirements on itself. Why is there a circular that is silent about the context? 

Why can’t Sebi come out with a position paper on these technology systems that is accessible to all market participants?

Exchanges are independent business entities; they are likely to be economical with information which could harm their competitive advantage. It is often difficult for the lay investor or member to discriminate from measures the bourses take for betterment of the market and those they take for betterment of their own margins. 

With both national exchanges coming up for listing, this tendency is likely to get even stronger. Therefore, it is for Sebi to go the extra mile and bring as much clarity as possible in this arena of high-tech trading and co-location systems. If it is short of capacity, it should build it. It can’t take chances by allowing things it can’t understand and later go for outside agencies to deal with the mess.