In 2013, certain high-frequency traders were able to manipulate the trading platform to execute a large number of orders without detection and thereby harm other users.
The Securities and Exchange Board of India (Sebi) has now requested an explanation from the National Stock Exchange (NSE) regarding allegations that some traders misused its trading access point (TAP) software.
This misuse, which involved executing “thousands of orders” without detection and disadvantaging other users, was discovered four years later during an investigation of the co-location scandal involving former NSE chiefs Chitra Ramkrishna and Ravi Narain.
NSE TAP was implemented in 2008 to track the number of orders sent by brokers to the stock exchange in order to charge them transaction fees. However, the accused traders allegedly used special software to bypass the system and evade paying fees for certain transactions.
The misuse was uncovered by income tax authorities during a raid in 2017, and NSE subsequently hired retired Kerala High Court judge Arvind Sawant in 2021 to investigate the matter. NSE filed an application for settlement with the regulator in January of last year, but the application was returned in April 2022 due to the ongoing investigation.
This manipulation scandal occurred alongside an existing co-location scandal, in which certain traders allegedly leased space at NSE’s co-location facility for preferential treatment between 2012 and 2014. The co-location scandal was investigated by the Central Bureau of Investigation and the Enforcement Directorate, and NSE was fined Rs 100 crore by the Securities and Appellate Tribunal (SAT).