India’s market regulator finally slapped a fine on the National Stock Exchange for giving preferential access to certain brokers

• The Securities and Exchange Board of India finally came down hard on the NSE for giving certain brokers preferential access to its trading systems.
  
• The SEBI found that between 2011 and 2014, some brokerages availed of faster access to the NSE’s algorithmic trading system, giving them an unfair trading advantage over other brokers.
  
• The markets regulator levied a fine of nearly ₹10 billion on the NSE and disallowed it from tapping capital markets for funds for a period of six months.
  
• The order has been a long time coming. The lapses in the NSE’s algorithmic trading platform and co-location services.first came to light in mid-2015.
  

After deliberating for a few years, the Securities and Exchange Board of India (SEBI) finally came down hard on the National Stock Exchange (NSE), one of the country’s two major bourses, for giving certain brokers preferential access to its trading systems.

The SEBI found that between 2011 and 2014, some brokerages, the likes of which include OPG Securities, Way2Wealth Brokers, and GKN Securities, allegedly availed of faster access to the NSE’s algorithmic trading system, giving them an unfair trading advantage over other brokers.

The markets regulator levied a fine of nearly ₹10 billion on the NSE - comprising a principal amount of ₹6.25 billion along with an annual interest rate of 12% since 2014 - to be paid to the Investor Protection and Education Fund (IPEF).

Furthermore, the NSE has been disallowed from tapping capital markets for funds for a period of six months while its two former CEOs and co-founders - Ravi Narain and Chitra Ramakrishna - will have to return as a portion of the salaries they earned during the years the lapses took place.

OPG Securities, alleged to be the main beneficiary from preferential access, was also given a fine in separate order, and barred from accessing securities markets for five years.

In response, the CEO of the NSE, Vikram Limaye, told Mint that the SEBI’s ruling would be reviewed and that legal options were being considered.

The order has been a long time coming. The lapses in the NSE’s algorithmic trading platform and co-location services.first came to light in mid-2015, when a whistleblower reported the events to the SEBI. As a result, the SEBI commenced a probe into the bourse’s high speed trading system. The issue of “preferential access” was confirmed by another former NSE employee in April 2017.

With the culmination of the legal saga, the NSE’s plans for an initial public offering (IPO) could be revived again. The bourse’s ₹100 billion IPO has been in the works since December 2016, but was effectively put on hold pending the resolution of the trading case.

However, it will only be able to move forward with the plans after the six-month period expires.


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