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5. The Informant has referred to whistle-blower's complaints made to SEBI in August and October 2015, wherein it was disclosed that NSE was allowing preferential access to the data dissemination servers to select stockbrokers to the exclusion of others, permitted non-empanelled Internet Service Provider ('ISP') to lay fibre in its premises for few stockbrokers and that NSE was acting in collusion with certain stockbrokers. The Informant also submitted that these allegations were subsequently confirmed by SEBI in its Technical Advisory Committee ('TAC') report. SEBI found that certain stockbrokers had insider information, inter alia, as to when different servers of NSE were turned on and speed of such servers which enabled them to log onto the services faster and as soon as they were turned on, thus being able to obtain the first orders placed in the market. Prior information about the impending buy and sell order-size at different prices, allowed such stockbrokers to know the price trend which encouraged and institutionalised a practice of front running. Thus, such conduct allegedly distorted and compromised the core principles governing stock market transactions qua interests of investors and pricing of stocks.

16. Further, even within the co-location space, there was discrimination between different brokers since few brokers, through connivance and collusion with officials of NSE, were able to get faster access to the systems of NSE ahead of the rest of the market. The TAC report of SEBI as well as the report of Deloitte clearly establish this fact. The absence of a documented system in place resulted in market abuse. Also, as per emails exchanged between officials of NSE itself, access to secondary server could be given only if the primary server failed, whereas there are documents on record which show that access to secondary servers were given to select brokers like OPG Securities while other brokers were barred from accessing the data dissemination servers through secondary servers. It is further claimed that such preference was made available to OPG Securities because of the linkages it had with Omnesys Technologies, a subsidiary of NSE, as also the algo software company that hosted most of its solutions in NSE colocation facility and also managed servers in NSE colocation facility. The TCP/IP protocol used by NSE was inherently vulnerable to abuse through inequitable access. The exchange did not use a randomiser and load balancer which could have ensured free and equitable access to all brokers. Further, criminal investigations have been launched against unnamed officials of NSE and SEBI besides others. The conduct of NSE has thus, resulted in denial of market access as provided under Section 4(2)(c) of the Act.

18. NSE vide its response dated 04.12.2020, the extensive oral submissions made by its learned senior counsel in the preliminary conference held on 17.12.2020 and further vide its supplementary submissions dated 24.12.2020, has inter alia stated that co- location facility entails computerized high frequency trading in securities by providing a stock exchange's trading members an option to co-locate their trading servers within the exchange's premises. This service benefits trading members by improving Direct Market Access and Algorithmic trading infrastructure and enables them to get faster access to information regarding price and market movements. This is a universal service offered by many stock-exchanges like (i) London Stock Exchange, (ii) NASDAQ, (iii) Chi-X, (iv) BATS (Better Alternative Trading system), (v) the New York Stock Exchange, (vi) Chicago Stock Exchange, (vii) Shenzen Stock Exchange, (viii) Tokyo Stock Exchange, (ix) Bombay Stock Exchange. It was to address latency issue that international stock exchanges introduced co-location services. NSE introduced co- location on 31.08.2009. Prior to 2009, trading in India entailed dissemination of data through means ranging from terrestrial lines to satellite links to fibre optic cables and there was lack of uniformity in speed with which market data could be accessed by different trading members. It has been further mentioned by NSE that co-location services facilitate trades at higher speeds and lower costs, faster execution of orders, reduced risk of errors associated with manual order entry, greater transparency, increased liquidity and therefore provide greater avenue for better price discovery in the market. As a result, it also aids lower impact costs of large trades, better audit trails and better use of hedging and arbitrage opportunities.

26. NSE also submitted that SEBI has given a wrong finding that (i) a trading member who connected first to the server, would allegedly get an advantage in terms of receiving the data faster and (ii) absence of a load balancer and randomiser allegedly led to imbalance of load between servers and unfair and inequitable access to data. Even assuming these are correct, there is no violation of Section 3 and/or 4 of the Act. Further, even if there was any theoretical advantage in connecting first to NSE servers, every member had the freedom to do so by deploying the best hardware.