HomeNewsCBI questions Sebi on oversight in NSE co-location case

CBI questions Sebi on oversight in NSE co-location case


Several Securities and Exchange Board of India (Sebi) officials are being questioned by the Central Bureau of Investigation (CBI) regarding lapses in the regulatory oversight of the National Stock Exchange of India (NSE), two people with direct knowledge of the matter said.

“Some mid-level Sebi officials are presently in Delhi and are being questioned by CBI on the various regulatory supervision measures taken by the regulator on NSE’s co-location services,” the first of the two people cited above said, requesting anonymity.

“Despite annual inspection and need-based inspections, Sebi did not take cognizance of co-location services being run at NSE without an SOP (standard operating procedure). Further, it appears that NSE never took permission from Sebi before it started the co-location services in 2009-10,” said the second person, also requesting anonymity.

Email queries to the spokespeople for Sebi and CBI spokesperson were not answered until press time.

A co-location facility is a service provided by exchanges where brokers and trading members place their servers on exchange premises to get faster access to market data and trading. While co-location of servers is a globally accepted practice, it is often criticized for being unfair to traders who do not have access.

In NSE’s case, the service was launched in 2009-10 without any standard processes, thus making the systems prone to manipulation.

For instance, in its probe and public orders, Sebi found NSE did not have procedures in place under which conditions and how often members could access the less crowded secondary server.

A trader accessing NSE systems through a secondary server was almost akin to a motorist driving on an empty highway while the rest of the traders were stuck in traffic.

NSE has 1,200 racks in its co-location facility where brokers can place their servers. Since it is a Local Area Network (LAN), order placements are faster than brokers whose servers are situated outside exchange premises. The average latency is at 1,744 nanoseconds. These rack spaces are taken up by 200-odd brokers out of the 1,400 brokers and trading members trading on NSE.

Meaning CBI’s line of questioning on regulatory oversight on NSE colocation service could also lead to former Sebi top brass being questioned.

When NSE launched colocation service CB Bhave was serving as Chairman, he demitted office in 2011.

The circular on guidelines for colocation service was issued when UK Sinha was serving as Chairman. To be sure, the whistleblower complaint which led to the probe in the colocation case was sent to Sebi on 14 January 2015.

Email queries sent to CB Bhave and UK Sinha were not answered.

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