The National Stock Exchange (NSE) has filed a consent application with the Securities and Exchange Board of India (SEBI) to settle the co-location matter that has been under regulatory probe for more than two years, with top officials of the bourse getting show-cause notices from SEBI.
“NSE has filed an application today with SEBI for settlement of the co-location issue under the consent process,” said a statement issued on Thursday by the NSE.
“This application has been filed under the settlement regulations of SEBI. SEBI will review the application and get back to NSE on the future course of action. NSE will work with SEBI on early resolution of this matter,” it added.
Consent mechanism refers to a settlement procedure wherein entities are directed to pay an amount without admission or denial of any wrongdoing. Co-location refers to the facility wherein brokerages can house their servers inside the exchange to get better speed for trade execution. Since the broker’s server is placed close to that of the exchange, the latency is reduced.
Anonymous complaint
The roots of the matter go back to January 2015 when SEBI received an anonymous complaint alleging that certain brokers with co-location servers were getting access to market data before the others who also had such facilities within NSE. The complaint also alleged that employees of NSE were involved in the irregularities.
NSE started offering this facility in February 2010 and currently co-location accounts for around 20% of the cash market turnover and 30% of the derivative volume.
More than half a dozen top officials – including former chiefs Ravi Narain and Chitra Ramkrishna — of the exchange have already received show-cause notices from SEBI, which has conducted its own forensic audit after publicly declaring that the audit done by the bourse was not found satisfactory.