Companies & Sectors
TAC Report Proves Systemic Lapses at the NSE
Will SEBI initiate ‘immediate action’ on lapses and constitute a team with ‘appropriate background ’ as recommended by its own expert committee?
 
The powerful technical advisory committee (TAC) of the Securities & Exchange Board of India (SEBI) conducted a detailed investigation of the National Stock Exchange’s (NSE) high frequency trading (HFT) and vindicated the contentions of an anonymous whistleblower who wrote three letters on how the Exchange’s trading systems gave better access to certain entities allowing them to make huge profits.
 
TAC’s investigation team prepared a detailed report and discussion of its findings and follow-up have been extensively reported by The Mint and Bloomberg. Moneylife too has perused a copy of the findings discussed by TAC at SEBI. But before we proceed further, a quick recap of the issue. Readers of Moneylife know that the NSE has filed a Rs100-crore defamation suit against us for bringing the contents of the letter to public attention sometime in June 2015. A notice of motion to gag us until the suit comes up for hearing was, however, shot down by Justice Gautam Patel of the Bombay High Court, who also ordered the NSE to pay Rs50 lakh as penalty mainly to two hospitals in Mumbai. Unknown to us, the whistleblower sent a second letter to SEBI in August 2015 detailing how it can verify his allegations of how NSE’s systems were compromised. SEBI kept mum about this even as it watched the outcome of NSE’s defamation charge against us. 
 
In October 2015, the whistleblower sent me a third letter which would prove his charge that certain influential entities managed to rake in huge profits through preferential access. This was sent only to me, but had explosive information on a ‘dark fiber’ link between the NSE and the Bombay Stock Exchange (BSE) which allowed a huge advantage to a third entity. We decided to share the letter with SEBI and the finance ministry, since our intention was to bring the truth before the people through proper investigation. 
 
Before we go into TAC’s findings, let me explain what HFT, or algo trading, is. These are automated trades conducted at millisecond or microsecond speeds throughout the day by computer programs developed to process market data. They buy and sell large quantities of securities, based on price patterns without human intervention, making huge profits from wafer-thin margin on massive volumes. It is these that explain the massive froth of trading turnover running into over Rs1 lakh crore every day. 
 
With this background, we will let the findings of SEBI’s TAC speak for themselves. TAC, chaired by Dr Ashok Jhunjhunwala, met on 15 March 2016 to discuss a report submitted by Prof Om Damani who was entrusted with the task of investigating the whistleblower’s letters. TAC recorded its thanks to Prof Damani for his ‘outstanding efforts’ and also noted that his project team of IIT-Bombay had undertaken a data analysis that was in the nature of a forensic audit. It then took note of the following findings confirmed from the whistleblower’s letter. 
  1. Technical details about how brokers could get advantage in connecting to the NSE’s servers because the Exchange had no ‘load balancers’ and ‘randomisers’ in its systems architecture.  
  2. That OPG Securities, a brokerage firm mentioned in the first letter, had, indeed, tried to exploit loopholes and it is ‘plausible’ that OPG and some other brokers were given preferential access to back-up servers. More importantly, that OPG ‘gained materially’ by exploiting the system. In this connection, it further said that while it has studied data and submissions from the NSE, “It is not possible from the data available alone to investigate and determine the extent of collusion of NSE officials with OPG/ others.” 
  3. The team also found that OPG’s ability to happily exploit the system ended when the system architecture changed. The committee agreed “that OPG Securities was able to exploit the architecture to gain undue and unfair advantage and NSE failed to prevent such manipulative practices by OPG.”
  4. The team found that the architecture of NSE with respect to dissemination of Tick-by-Tick (TBT) through TCP/IP was prone to manipulation/abuse. When SEBI requested NSE to investigate this, NSE claimed that their architecture could not be, and has not been, misused. In spite of NSE not providing adequate details on the issue, the available data was examined and the report conclusively shows that OPG consistently logged in to the servers with better hardware specifications. It also finds that information on back-up servers was not transparently communicated to all brokers in 2011-12 and earlier.
  5. From the third letter, it was confirmed that the staff of Sampark Infotainment, visited NSE on multiple occasions for laying fibre cables, installation, etc, on behalf of Ways2Wealth and GKN. The whistleblower had contended that Sampark had provided a ‘dark fibre’ link to Ways2wealth, giving better access. Here is what the TAC-commissioned report says, “With regard to the issue of dark fibre, the Committee was of the view that in violation of its own policy on allowing only ISPs, NSE allowed non-ISPs like Sampark, to lay fibre in its premises for various members.”
  6. The report further said that NSE had “violated norms of fair access and allowed some brokers to benefit. Also, when the complaint was made to NSE, its management had dismissed it and did not initiate any steps to check the possibility of any collusion with the staff of NSE.”
TAC did not stop at merely accepting the report.  It says, “SEBI may initiate immediate action for lapses on the part of NSE and exploitations made by OPG under the guidance of the Committee,” and that SEBI should constitute a team of people with appropriate background to “investigate the collusion aspect between NSE officials and OPG.” 
 
We are delighted that a full investigation by TAC has brought some larger issues to attention which the committee plans to discuss, review and examine in future.  First is the all-important issue of how to build capacity within SEBI to proactively detect wrongdoing/ system abuse at the brokers’ end and inside stock exchanges. Secondly, whether the “fibre connectivity between two co-location facility provides any unfair advantage to the brokers vis-à-vis retail players/ investors.” In fact, regulators around the world are debating the second issue of how automation has made retail investors as well as institutional investors outside the HFT group into second-class investors. But, so far, hapless and disaggregated investors have been losing the battle because they do not have a powerful and united voice. TAC plans to go deep into the larger issue of “the robustness of the architecture of NSE and BSE and whether randomisation needs to be introduced” as well as SEBI’s policy with regard to co-location and algorithmic trading, its impact and the actions that are required. 
 
As always, we have emailed SEBI chairman and NSE’s top brass as well as several members of the NSE’s board of directors, but have received no reply to findings of the TAC. The responses from OPG Securities and Ways2Wealth are already in the public domain; the former has denied the findings. 
 
Interestingly, after details of SEBI’s findings were published by various media entities, the Association of National Exchange Members of India (ANMI), which represents 900 members, is understood to have told the news agency Bloomberg that it plans to take up the issue with the regulator. 
 
Clearly, the battle to get at the truth is far from over. NSE’s defamation case against us and appeal against Justice Gautam Patel’s order persists. Let us not forget that the finance ministry as well as the Standing Committee of Parliament have asked SEBI for a copy of TAC’s report. It remains to be seen if they initiate any action. 
 

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COMMENTS

Ramesh Poapt

7 months ago

dirt coming out!! clean India begun well...! tip of the iceberg?!

AVINASH BHOSALE

7 months ago

Great work...though most of beyond my comprehension. People like u are the ultimate rays of hope in chaos around us. Keep going on. We are with u. May the justice served in time.

Harish Kohli

7 months ago

Sucheta's remark "Most readers wont even subscribe." is telling. Earlier she had written that the people who gained substantially from the Moneylife helplines did not care to support the people who helped them.

Meenal Mamdani

7 months ago

MoneyLife is incredibly brave to pursue the giants in the interest of justice.

This is also happening in USA. The link below will explain how Investors Exchange is being stymied by SEC. Why, one wonders.
http://www.nytimes.com/2016/04/10/busine...

Parimal Shah

7 months ago

Why can ahigh cour not take suo oto action in this case when wrong doing is in the print media?
Why is moneylife not filing a PIL on behalf of retail investors?
-Parimal

REPLY

Sucheta Dalal

In Reply to Parimal Shah 7 months ago

BECAUSE Moneylife has no money. When you take on the powerful, you make enemies. That prevents you from becoming rich and loaded.

Most readers wont even subscribe.

So sorry, we struggle in the little way we can and do our bit within our limited means!!

Harish Kohli

In Reply to Sucheta Dalal 7 months ago

Sucheta's remark "Most readers wont even subscribe." is telling. Earlier she had written that the people who gained substantially from the Moneylife helplines did not care to support the people who helped them.

Goa set to launch seaplane rides for tourists

Each plane with eight people on board can land and fly from the sea. These planes will land on the Mandovi river, giving tourists the opportunity to catch glimpses of the backwaters

 

Goa is all set to launch seaplane and amphibian rides for tourists, a top state government official said here on Sunday.
 
"We are soon going to start seaplane service to give an aerial view of the picturesque destinations," Goa tourism director Sanjeev C. Gauns Dessai told IANS.
 
He said there is much demand for air rides among tourists.
 
"We are awaiting clearance from the central government. Once we get the permission, we will start the seaplanes," he said.
 
Each plane with eight people on board can land and fly from the sea. These planes will land on the Mandovi river, giving tourists the opportunity to catch glimpses of the backwaters.
 
Goa is flanked by the Arabian Sea on the west and the Sahyadri mountains on the east and is criss-crossed by several rivers.
 
Dessai, who was here to participate in a three-day exposition of Himachal Pradesh tourism industry that concluded on Sunday, said the government is also to start amphibian buses that can run on roads as well as float on water.
 
"Such vehicles will be the first of its kind in India and, of course, unique in giving 'Go Goa' experience. Even this state (Himachal Pradesh) can start amphibian buses to attract more tourists," he said.
 
An amphibian bus, common in Singapore and London, costing about Rs.2 crore and with a capacity to carry 32 people, will run on both road and water.
 
These vehicles have been manufactured in Goa with technological collaboration from the US.
 
Goa, with a population of 1.5 million and spread over 3,702 sq km, attracts 45 lakh domestic and five lakh foreign tourists annually.
 
The visitors mainly come from Russia, Britain and Germany.
 
The state tourist department last year added hot air balloon, motorised paragliding and helicopter services to its portfolio to offer tourists aerial view of the popular destinations in the state.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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'Private sector to play key role in Smart Cities mission'

The global urban population is set to rise over 66% by 2050, and India will be a significant contributor

 

The private sector will play a pivotal role in the development of smart cities though India's urban growth has not been accompanied by commensurate increases in infrastructure and municipal services, a study said on Sunday.
 
A joint report prepared by the World Economic Forum and PricewaterhouseCoopers (PwC) said the private sector will play a key role in delivering the much-needed infrastructure and help address capacity issues across state governments and urban local bodies.
 
"The growth of India's urban population has not been accompanied by commensurate increases in urban infrastructure and service delivery capabilities. As a result, cities in India face a range of challenges in areas such as water, waste management, energy, mobility, built environment, education, healthcare and safety," it said.
 
It said the global urban population is set to rise over 66 percent by 2050, and India will be a significant contributor.
 
According to the report, India's urban population currently is around 410 million, around 32 percent of the total population, and is expected to reach 814 million, or 50 percent of the world population, by 2050.
 
"This is why the plan announced by the government of India for 100 smart cities and 500 Atal Mission for Rejuvenation and Urban Transformation cities is so important," the study said.
 
However, taking the leap to smart cities requires more than just government proclamation, the report said, adding that the challenges may exacerbate if timely action is not taken, and if neglected, could even derail India's growth.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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