SEBI Sends Notice to NSE on Alleged Misuse of Trading Software by High-Frequency Traders

Tanushree Jaiswal 7th July 2023 - 12:25 pm

The Securities and Exchange Board of India (SEBI) has taken action against the National Stock Exchange (NSE) following allegations of software misuse by specific high-frequency traders.

It is reported that these traders took advantage of the trading access point (TAP) software back in 2013, executing many orders without detection, potentially overshadowing other brokerages.

The misuse of the TAP software was discovered four years later during an investigation into the co-location scam, which involved former NSE executives Chitra Ramkrishna and Ravi Narain.

SEBI has recently sent a notice to the NSE, demanding an explanation, based on the findings of a retired judge appointed to investigate the TAP manipulation. The NSE introduced the TAP system in 2018 to monitor brokers' order volume and charge them transaction fees accordingly.

However, it is alleged that high-frequency traders manipulated the TAP system using specialized software, enabling them to avoid paying transaction fees.

The misuse of TAP came to light when tax authorities raided the brokers involved in the co-location scandal in 2017. During the raid, emails related to the TAP manipulation were discovered. In response to SEBI's orders, the NSE appointed retired judge Arvind Sawant to investigate the matter in 2021.

However, the NSE's fiscal year 2021-22 annual report did not mention receiving any notice from the market regulator regarding the TAP issue.

On January 13, 2022, the NSE filed a plea with SEBI to settle the matter under the SEBI Settlement Regulations. However, SEBI rejected the request on April 21, 2022, citing the ongoing investigation. Currently, SEBI and the NSE have not responded to further queries regarding this issue.

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Tanushree Jaiswal

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