Market regulator Securities and Exchange Board of India (SEBI) has slapped a penalty of Rs3 lakh on Share India Securities Ltd for flouting norms related to the National Stock Exchange (NSE) co-location (Colo) facility. SEBI had received multiple complaints against the broker, pertaining to allegations of malpractices with respect to the Colo facility provided by NSE.
SEBI had taken up the matter for investigation, in the wake of allegations of preferential access to tick-by-tick (TBT) data feed given by NSE to certain trading members.
Share India Securities was one of the trading members identified for comprehensive investigation (including forensic audit) for primary and secondary server connects. Deloitte Touche Tohmatsu India LLP was entrusted withthe forensic audit of the Share India Securities. Deloitte submitted the final report to SEBI in September 2019.
Deloitte, in its report, had stated that NSE Colo Support vide email dated 30 August 2012 had provided the NSE Colo guidelines to Share India Securities (SISL), ‘NSE Colocation Guideline ver_1.2’. The said guidelines inter alia indicated that “Members should always check the secondary TBT parameters are working fine with their application and in case of non-availability of data from TBT primary source they can move to secondary source.” The aforesaid restriction on secondary server came into effect from April 2012.
Further, NSE Colo Support also sent a document, “NSE Colocation Guideline ver_2.1” via an email dated 19 September 2013.
Further, as per an email dated 02 December 2011, from NSE Colo Support, which was copied to Parveen Gupta (director-SISL), Sachin Gupta (director-SISL) and Amit Sharma (IT Head -SISL), it was stated that the member should intimate the NSE before connecting to the secondary server
However, Share India Securities falsely claimed that they have not received any general/ specific guidelines/ communications issued by NSE with respect to connecting to the secondary / fallback server.
SEBI’s investigations revealed that the company logged into secondary server in currency derivatives, cash market and futures and options during 2012-2014. According to NSE's Colo guidelines, secondary source for TBT data is to be used in the event of non-availability of TBT primary source and trading members should not routinely connect to the secondary server. Therefore, it is not considered to be normal when brokers repeatedly connect to secondary server without justifiable cause.
As per NSE's Colo guidelines, the secondary source for TBT data is to be used in the event of non-availability of the TBT primary source and trading members should not routinely connect to the secondary server.
Further, as per available records, NSE advised the broker not to connect to the secondary server. However, the broker continued to log in to the secondary server, SEBI noted.
The noticee connected frequently to the secondary server, which violated the NSE co-location guidelines, thereby also failing to exercise due skill care and diligence in conducting its trading operations, it added.
By circumventing the primary source regularly, the noticee engaged in conduct which undermined the trading system set up to provide fair and equitable access to all brokers connected to the exchange server.
Through such acts, Share India Securities flouted the provisions of the NSE by-laws and code of conduct specified under the stock broker rule as well as PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) regulations.
Moneylife has been covering the NSE Colo scam since 2015 and the details of the Colo scam have been documented in the book
Absolute Power by the editors of
Moneylife Sucheta Dalal and Debashis Basu. The book was released in June 2021.
