SEBI Sends Notice To NSE On Alleged Misuse Of Software By High-Frequency Traders

The alleged misuse of the trading access point (TAP) software in 2013 was found four years later by the income-tax department during a probe into the co-location scam

The SEBI sent a show-cause notice to the NSE based on the findings of a retired high court judge, who was appointed to investigate the TAP manipulation.

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Markets regulator Securities and Exchange Board of India (SEBI) has sent a notice to the National Stock Exchange (NSE) asking for an explanation over the alleged misuse of software by some high-frequency traders to fire a barrage of orders without being noticed and crowding out rival brokerages, according to a news report.

A report by the Economic Times stated that the alleged misuse of the trading access point (TAP) software in 2013 was found four years later by the income-tax (I-T) department during a probe into the co-location scam in which Chitra Ramkrishna and Ravi Narain, former MD and CEO of the NSE, are among the accused.

Recently, the market regulator sent a show-cause notice to the NSE based on the findings of a retired high court judge, who was appointed to investigate the TAP manipulation, the business daily said, citing sources.

In 2018, the NSE unveiled the TAP system to check the number of orders that brokers send to the stock exchange so that it could charge them a transaction fee. The high-frequency traders manipulated the TAP by using special software and even avoided paying the transaction fee to the NSE, the daily quoted one of the sources as saying.

The I-T department came across the misuse during a 2017 raid on the brokers accused in the co-location scandal. They found emails regarding the TAP manipulation, the source said.

On SEBI's orders, the NSE hired retired Kerala High Court judge Arvind Sawant to examine the matter in 2021. The NSE, in its annual report for fiscal 2021-22, mentioned that it had not got any show-cause notice from the market regulator over the TAP issue.

On January 13, 2022, the NSE filed a plea with the regulator to settle the matter under the SEBI Settlement Regulations, the annual report mentioned. The market regulator on April 21, 2022 turned down the request, mentioning the pending probe. The report said the SEBI and the NSE were yet to reply to its queries.