India Regulator Asks Bourse to Probe Unfair HFT Access Claim

  • NSE to submit report to Sebi within three months: NSE chairman
  • High-speed transactions make up 40% of volume in India: Aite

India’s markets regulator has asked the National Stock Exchange of India Ltd. to investigate claims of some high-frequency trading firms gaining unfair access at the country’s biggest bourse.

The Securities & Exchange Board of India has also asked the exchange to deposit all revenue from fiber links between colocation facilities, which refers to placing traders’ servers next to that of an exchange, and brokers’ offices in an escrow account pending the probe, NSE Chairman Ashok Chawla said by phone Thursday.

QuickTake Trading on Speed

The NSE will hire an external agency to investigate the “alleged manipulation” of its technology and will submit a report to the regulator within three months, Chawla said.

Sebi’s order, reported by the Economic Times on Thursday, comes a month after it proposed checks on algorithmic trading to ensure players have fair access to exchanges. High-speed transactions account for 40 percent of total volume in India, the highest proportion in the developing world and up from low single digits five years ago, according to Aite Group, a Boston-based consulting firm.

While Sebi’s order is encouraging, the “commissioning of the inquiry ought to have been done directly by the regulator itself,” Deven Choksey, managing director of Mumbai-based K.R. Choksey Shares & Securities Pvt., said by phone.

Speed Bump

The regulator’s draft guidelines issued in August suggested a fraction-of-a-second speed bump, alternating trades between different types of orders and a mechanism to prevent traders from canceling an order until it is confirmed by the exchange. India’s brokerage associations have said Sebi’s efforts could increase complexity and lead to disruption.

A Sebi spokesman didn’t immediately respond to an e-mail seeking comment.

The regulator’s advisory committee in April recommended a probe into whether NSE officials worked with OPG Securities Pvt. to give the New Delhi-based firm unfair access, according to a copy of an internal report seen by Bloomberg News. It also called for the probe to examine whether Way2Wealth Brokers Pvt. benefited from a dedicated fiber-optic line between NSE and BSE Ltd., India’s second-biggest bourse.

OPG has previously denied any wrongdoing. Officials at Way2Wealth didn’t respond to a request for comment. 

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