INSUBCONTINENT EXCLUSIVE:
What is co-locationCo-location allow brokers to operate closer to their servers upon payment of additional fees
It helps brokers secure advantage over others due to proximity to exchange servers as data transmission takes less time
Orders reach exchange servers faster than those who have not availed of the facility
What is the scamA whistleblower in 2014-15 complained
to the Securities and Exchange Board of India (Sebi) saying some brokers in collusion with a few top NSE officials had abused the colocation
NSE was then using the so-called tick-by-tick (TBT) server protocol to relay data to members
The peculiar part about this protocol is how it delivers the information
Normal data protocols send data to all users connected on the network at the same time
But TBT transmits in the sequence of orders received
In other words, the user who gets the access to the system first would receive data earlier than the rest
A select set of brokers in collusion with NSE officials and Omnesys Technologies (the company that provided technology to NSE) got the first
along with internet service provider Sampark Infotainment were guilty of unfair trading practices
which were maintained by the exchange to prevent technical glitches on the main server from impacting operations.
Traffic is either light or
non-existent on these servers as they are for backup only
On normal days, even when the main server is working, anyone logging in through backup servers can send and receive data faster
OPG and others exploited this to their advantage, Sebi says.
Did NSE break rulesThe exchange allowed OPG and others access to back-up
servers and gave them first access which helped them in executing orders fast
NSE also overlooked the fact that Sampark Infotainment did not have a valid Department of Telecom licence to provide dark fibre connectivity
Along with brokers, Sebi has also charged several NSE top officials for colluding with brokers
These include former NSE CEO Chitra Ramakrishnan, former MD Ravi Narain, Deviprasad Singh, the former head of colo department at NSE, Ravi
Varanasi, its current business development head, Umesh Jain, CTO of NSE, and others
In its report, Sebi has clearly said that the key functionaries did not follow the appropriate protocols
Further, NSE has been slapped with a fine of Rs 687 crore plus interest.
What is dark fibre connectivityA connection through dark fiber
Its IPO will be delayed till the year-end but that is unlikely to affect NSE or its valuation
NSE also has enough reserves to pay this fine and remain financially strong.
Will normal operations be affectedNo
The Sebi order in no way affects normal trading on the exchange.