Sebi sends NSE final show-cause notice in unfair access case
MUMBAI : The Securities and Exchange Board of India (Sebi) on Wednesday issued the second and final show-cause notice to National Stock Exchange of India (NSE) for allowing preferential access to some brokers, two people aware of the matter said.
Starting 2010, certain brokers allegedly used NSE’S co-location facility to get early access to its algorithmic trading systems, gaining an unfair advantage until NSE changed its systems in 2014 to prevent misuse. Algorithmic trading refers to the use of electronic systems to execute thousands of orders in a split second. Members who co-locate their servers on exchange premises gain because their orders travel faster.
“The charges against the exchange include fraud under Prevention of Fraudulent and Unfair Trade Practices in addition to violation of Securities Contracts Regulation Act (SCRA). Sebi has alleged that NSE systems were compromised and thus it led to fraudulent and unfair benefit to brokers,” said the first of the two people, both of whom declined to be identified.
Sebi has also issued show cause notices to NSE officials and the brokerages. The first set of show causes were issued in May 2017.
A spokesperson for NSE was not available for comment; however, an NSE official confirmed receiving the notice without going into details.
The first of the two people quoted above said Sebi has established ill-gotten gains in the case of OPG Securities. “It was almost impossible to ascertain but it is estimated to be ₹50-75 crore,” he said.
“Three brokerages have been identified, including OPG Securities, who made gains due to the unfair access. Key directors and employees have also been sent a show cause notice. Charges against them include fraud, violation of broker code of conduct regulations,” said the second of the two people quoted earlier.
A spokesperson for Sebi was not available for comment.