NSE Co-Location Case – UPSC GS3

What is the National Stock Exchange (NSE) co-location case?
  • The NSE is facing allegations that some brokers got preferential access through the co-location facility at the stock exchange, early login, and ‘dark fiber’, which can allow a trader a split-second faster access to the data feed of an exchange.
  • Even this infinitesimally sooner access is considered to result in huge gains for a trader.
SEBI’s action in the case:
  • The Securities and Exchange Board of India (Sebi) penalized the former MD chief and chief executive officer of the NSE and a few others for allegedly violating securities contract rules in the appointment of Subramanian as group operating officer.
  • The SEBI order spotlights the regulator’s tardiness in adjudicating a sensitive matter involving the manner of appointment of a top-level NSE official.
  • It also points out possible regulatory violations by the then CEO and MD in sharing confidential internal information with an unknown person.
  • The top management and some key directors clearly failed to discharge their duties, largely because they trusted people at an institution that serves as a frontline regulator for the Indian capital market.
  • Issues also encompass much-bigger concerns such as lapses at various levels, including the board, the regulator and the government, including those relating to the controversial co-location facilities and high-frequency trades.
  • Such concerns are also being cast on the “fat finger trade” fiasco of 2012 were allegations that the crash was triggered by something else as a deliberate manipulation.
  • “Fat-finger trade” is a term used for punching error or wrong pressing of orders on the trading terminals.
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