The NSE Co-Location Scam: A Wake Up Call For Corporate Governance

Gopa Nanda, KIIT School of Law

ABSTRACT

Market manipulation at India's largest stock exchange, the National Stock Exchange of India, is the focus of the NSE co-location fraud. The NSE's goal of demutualizing exchange governance and its comprehensive transparency- based methodology may have been violated because select players reportedly received market price information before the rest of the market, allowing them to outperform the market. It is alleged that insiders worked together to rig the NSE's algorithm trading and the use of co-located servers, earning a number of brokers significant profits. The Securities and Exchange Board of India (SEBI) received the first anonymous complaint via a whistleblower's letter in January 2015, revealing this extensive market fraud. According to the whistleblower, trading participants collaborated with exchange authorities to benefit from prior knowledge. Over the course of five years, it is anticipated that the total amount of defaults through the NSE's high- frequency trading (HFT) will exceed $500 billion. The Central Bureau of Investigation (CBI), the Securities and Exchange Board of India (SEBI), and the Income Tax Department are investigating the NSE co-location case, as well as the involvement of officials from NSE and SEBI, NSE's former and current executives and brokerages, and the significance of corporate governance in relation to this case.

Keywords: NSE, Scam, SEBI, brokerage, corporate governance.