SEBI has found Ravi Varanasi, Nagendra Kumar, Deviprasad Singh guilty of colluding with Way2Wealth Brokers and GKN Securities to give them an unfair advantage over the rest of the market.
Market regulator SEBI’s final order in the National Stock Exchange colocation case could result in a two-year suspension for four senior officials of the bourse.
SEBI has found Ravi Varanasi, head of business development, Nagendra Kumar, head of membership department, Deviprasad Singh, head of colocation support, guilty of colluding with two stock brokers —Way2Wealth Brokers and GKN Securities — to give them an unfair advantage over the rest of the market by way of faster access to the price feed on the bourse.
SEBI has barred the three officials from holding any position with any stock exchange, clearing corporation, depository, and/or in any intermediary registered with SEBI, for two years. In addition, Varanasi has been barred from holding a position with a company listed in any of the stock exchanges recognised by SEBI for three years.
Way2Wealth and GKN Securities were allowed to have a direct connection between their servers placed in the colocation racks at the NSE and the Bombay Stock Exchange. Colocation is a facility provided by stock exchanges which allows stockbrokers to rent specific racks and place their servers and systems within the exchange premises, in order to access price feeds from the exchange at a much faster pace.
In a clear violation of rules, both stock brokers used the services of telecom service provider Sampark Infotainment, which was not authorized by the NSE for such work.
When other brokers sought permission from the NSE to use the same facility offered by Sampark, they were refused.
Because of the direct connection between the NSE and BSE colocation racks, Way2Wealth and GKN Securities had a much faster access to price feeds compared to their rivals.
SEBI found Varanasi guilty of allowing Way2Wealth and GKN to continue availing the connectivity provided by Sampark even after finding out that Sampark did not have a requisite license.
Also, Varanasi’s team inspected the sites of certain brokers to ensure that the connectivity from the broker’s colocation rack terminated at the office of that broker and not elsewhere. However, the same procedure was not followed Way2Wealth and GKN.
Way2Wealth, taking advantage of non physical inspection by NSE took the leased line connectivity from NSE colocation directly to their rack in BSE colocation without routing it through their office in BSE premises. This was in violation of the NSE rule which did not allow direct connectivity between NSE colocation servers and the BSE colocation servers.
Nagendra Kumar and Deviprasad too has been found guilty of the same charges as Varanasi.
As for Deviprasad, SEBI has found him guilty also of “allowing W2W(Way2Wealth) to arrange cabling through Sampark in the colocation rack in a manner that W2W had lower latency compared to other trading members/stock brokers.”
The other brokers were connected to the Sampark multiplexer placed in the NSE Meet Me Room (MMR).
Multiplexer is an equipment, like a junction box, used in the network system for connecting multiple users to the network line of the service provider.
MMR is a place where telecommunications companies physically terminate their own infrastructure in the multiplexer. At the NSE MMR, connectivity is provided to stock brokers with the network service providers through the multiplexer installed by the network service providers.
"The aforesaid arrangement (cabling) could not have taken place without collusion of W2W, Sampark and officials of NSE. It was the responsibility of colo support team of NSE to monitor the cabling and ensure fair and equitable access to all its trading members," SEBI said in its order.
The regulator has found Suprabhat Lala, an assistant vice president at the stock exchange guilty of colluding with noted academician Ajay Shah, and Infotech Financial Services, in which Lala's wife Sunita Thomas is a director, through sharing of confidential information in course of his employment at NSE.
Ajay Shah and Infotech Financial have been charged with fraudulently misusing confidential data of the NSE for developing and selling algo trading software.
Lala has been barred from holding any position with any stockexchange, clearing corporation, depository, and/or in any intermediary registered with SEBI, for two years
SEBI has pointed out that his wife Sunita had access to data and information about functioning of NSE other than the data that her company was entitled to receive from NSE for the Liquidity Index project.
The order highlighted an email dated April 27, 2014 in which Shah wanted to have a meeting with the two directors of Infotech Financial Services and Lala "to discuss regarding happenings in NSE HFT (High Frequency Trade) and to make further plans.""The question that arises is if Noticee No.5 (Lala), who was looking after trading operations at NSE, had no nexus with Noticee No.1 (Ajay Shah) or Noticee No.2 (Infotech Financial Services), what was the need for him to be invited outside the exchange office premises to discuss the latest development about HFT trades at NSE? Why was he expected to share NSE's trade information to outsiders at an outside venue amongst strangers?," the order said.Subscribe to Moneycontrol Pro and gain access to curated markets data, exclusive trading recommendations, independent equity analysis, actionable investment ideas, nuanced takes on macro, corporate and policy actions, practical insights from market gurus and much more.