What is the NSE co-location case?

Markets regulator Securities and Exchange Board of India (SEBI) has initiated enforcement action against various entities in the National Stock Exchange (NSE) co-location case on June 21. The watchdog has been probing a case against the NSE's co-location facility.

What are NSE co-location facilities?

Under the NSE co-location facility, trading members can place their servers in the exchange’s data centre, where they get faster access to the price feed, helping in swift execution of trades.

The NSE’s co-location facility provides access to brokers for a cost. Greater access means brokers can execute trades faster.

What is the NSE co-location case? 

In July 2016, SEBI had directed the company to carry out an investigation, including forensic examination by an independent external agency, on the its co-location facility.  This followed allegations that the NSE had given some traders preferential access to its facility.

Meanwhile, SEBI had directed that revenues from co-location facility — including the transaction charges on the trades — be kept in the escrow  account.

The accused in the case are being probed for rigging the system in order to provide preferential access to some brokers by giving them access to the backup servers in the co-location facility as well.

With the illegal speed advantage, the brokers under suspicion allegedly carried out high-frequency trades for four years between 2010 and 2014, enriching themselves and their clients to the tune of thousands of crores.

While there is no clarity on how much money brokers made through the co-location facility, the probe raises an eyebrow on the officials who have received SEBI notices and are still working at NSE.

Who are the prime accused? 

OPG Securities is one the prime accused in the NSE co-location case. The Income Tax department has already conducted searches on the premises of OPG Securities, NSE’s employee Suprabhat Lala, one Ajay Shah and former NSE managing director Chitra Ramakrishnan.