In news– CBI has arrested Chitra Ramakrishan, former CEO of National Stock Exchange of India (NSE) under co-location scam related to the manipulation of the market at the stock exchange, recently.
About the scam-
- There are allegations that some brokers who had leased space at the NSE co-location facility were able to log on to the NSE’s systems faster with better hardware specifications while engaged in algorithmic trading, which allowed them unfair access and advantage during the period from 2012 to 2014.
- Even a split-second faster access is believed to result in huge gains for a trader.
- The Securities and Exchange Board of India (Sebi) found that preferential access was given to stock brokers at NSE’s colocation faculty.
- It found that a single stock broker could log on to multiple dissemination servers through multiple IPs assigned to him.
- This gave at least 15 brokers preferential access.
- Following its investigation into the issue, Sebi in 2019 directed NSE to disgorge Rs 624.89 crore, and barred the exchange from accessing the market for funds for six months.
- Sebi also asked the former NSE CEOs, Ramakrishna and Narain, to disgorge 25 per cent of their respective salaries drawn during a certain period.
- They were also prohibited from associating with a listed company or a market infrastructure institution or any other market intermediary for a period of five years.
What is Co-location?
- A colocation facility, or colo, is a data center facility in which a business can rent space for servers and other computing hardware.
- It is associated with a facility where a third party can lease a rack/server space along with other computer hardware.
- This facility provides infrastructure such as power supply, bandwidth, and cooling for setting up servers and storage of data.
- When it comes to NSE, there are dedicated spaces in the exchange building(NSE), right next to the exchange servers, where high-frequency and algo traders can place their systems or programs.
- With the co-location facilities being extremely close to stock exchange servers, traders here have an advantage over other traders due to the improvement in latency (time taken for order execution).
But the co-location is mainly used only by institutional investors and brokers for their proprietary traders and Retail investors have negligible presence here.
Source: The Indian Express
