On the grounds of a letter written by a whistle blower in 2015 to Market regulator Securities and Executive Board of India (SEBI) citing that Derivatives regulator National Stock Exchange have given preferential access of ‘co-location’ in which broker’s computer is located in the same area shared by stock exchange’s server to a few High Frequency Traders and brokers associated with the exchange’s trading platform which facilitates them fast execution of orders with 10:1 speed advantage along with low latency, which makes them first one to interface with the server.
In lieu of that, SEBI has regurgitated NSE Rs. 624.89 crores (that has been earned by NSE through the particular fraudulent practice, estimated by SEBI) with 12 per cent interest, which has been compounded from April 1, 2014, a penalty of total five orders constituting 1,000 crores and barricaded for six months in which the exchange will not be able to access the Primary market for its much awaited IPO valued 10,000 crores during the period and invest in securities market. As per SEBI order, the amount that has been disgorged to NSE has to be credited in the Investor Protection and Education Fund within 45 days from the date of order. Market regulator has also directed the exchange to audit their systems on regular intervals.
Under the Prohibition of Fraudulent and Unfair Trade practices (PFUTP) practices, NSE has committed an unfair and fraudulent deed, which has barred the exchange not to introduce any new derivative product in equities and commodities for next six months.
It is unable to neglect that ‘NSE failed to maintain due diligence in Tick-by-Tick architecture that take care of every change in prices of the underlying assets.
SEBI has cornered two former Managing Directors: Ravi Narain and C. Ramakrishna in providing preferential access to a few High Frequency traders and brokers to commit fraudulent trade practices and regurgitated 25 per cent of their salary drawn in FY 11-13 and FY14 respectively. They are also barricaded from associating with listed securities or any market institutions and intermediaries for next five years.