Moneylife:
National: Thursday, 03 December 2015.
Market
regulator Securities and Exchange Board of India (SEBI), after receiving a
letter dated 14 January 2015 from a Whistleblower alleging dubious practices
followed for co-location services by a stock exchange, felt that there was a
need to 'urgently have a basic regulatory framework for co-location services',
reveals a reply received under the Right to Information (RTI) Act.
According to
the reply received from the market regulator, a note dated 26 February 2015
from its Market Regulation Department- Division of Policy shows that there were
no specific regulatory requirements prescribed by SEBI on co-location facility.
It says, "...at present, there are no specific regulatory requirements
prescribed by SEBI that stock exchanges are required to adhered to while
providing co-location facility to the stock brokers."
"In view
of the allegations made in the letter of xxx (name withheld by SEBI), it is
felt that there is an urgent need to have a framework for regulating the
activity of co-location. While the proposal related to two-queue architecture
may be further debated, the requirement to ensure 'Fair and equitable access to
the co-location facility' and 'integrity and security of the data and trading
systems' may be issued," the note says.
It may be
recalled that Sucheta Dalal, Managing Editor of Moneylife also received a copy
of the letter from the Whistleblower at the same time. After waiting for almost
four months and doing thorough research, she sent the letter to SEBI seeking
information on action taken by the market regulator, if any. There was no
response from SEBI.
According to
the reply received under the RTI, in a note on 3 March 2013, SEBI has stated
that Indian exchanges, either on their own or through third parties were offering
the facility of colocation. Here is what SEBI stated in the note prepared by
its Market Regulation Department- Division of Policy…
i. “NSE: Vide circular dated August 21, 2009,
NSE has allowed informed that it will provide co-location facility to its
members for their DMA and ALGO IT infrastructure at its premises.
ii. BSE: Co-location facility is being offered by
the stock exchange through a third party IT Service Provider (Netmagic
Solutions Pvt. Ltd.)
iii. MCX-SX: Vide circulars dated December 23,
2011 and December 07, 2012, MCX-SX has allowed its member to use co-location/
proximity hosting.”
As per
MarketBeat blog on Wall Street Journal , while a "multitude of data is
being transferred from exchange to exchange and then onto a trader’s computer,
high-frequency and other traders can access prices a split second faster
through direct feeds. This practice is known as collocation, and it’s employed
by nearly every exchange in the US. For a fee, trading firms are allowed to
place their trading computers in the same data centres that house an exchange’s
computer servers. With sophisticated models built into these trading computers
and little oversight on the exchange itself, the computers are almost
guaranteed to be the first on any order should they choose to act on."
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