Sebi seeks explanation from NSE over misuse of its TAP platform: Report

In 2013, some high-frequency traders manipulated the platform to execute 'thousands of orders' without being detected and crowding out other users

The Securities and Exchange Board of India (Sebi) has sought an explanation from the National Stock Exchange (NSE) over allegations of some traders misusing its trading access point (TAP) software, The Economic Times (ET) reported on Thursday.

Allegedly, some high-frequency traders manipulated the platform in 2013 to execute "thousands of orders" without being detected and crowding out other users. The misuse was detected four years later by the income tax authorities during the investigation of the co-location scandal involving former NSE chiefs Chitra Ramkrishna and Ravi Narain.

NSE TAP was introduced in 2008 to monitor the number of orders that a broker sends to the stock exchange so that it could charge them a transaction fee. The TAP sends orders from a number of servers to the stock exchange.

The traders allegedly used special software to bypass the system and even skipped paying fees for some transactions.

The I-T authorities came across the manipulation during a raid in 2017. In 2021, NSE hired Arvind Sawant, a retired Kerala High Court judge, to conduct a probe into the matter. 

In January last year, NSE filed an application with the regulator to settle the matter. In April 2022, the regulator returned the application citing the pending investigation.

The scam was unearthed at a time when NSE was already dealing with the co-location scam. In it, there were allegations that some traders leased space at the NSE co-location facility to get preferential treatment between 2012 and 2014.

The case was investigated by the Central Bureau of Investigation and the Enforcement Directorate. The Securities and Appellate Tribunal (SAT) imposed a penalty of Rs 100 crore on NSE for the scandal.