SEBI penalises 2 brokerages in NSE Co-Location case

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SME Times News Bureau | 16 Apr, 2021
Capital market regulator SEBI has fined brokerage firms, PRB Securities Private Ltd and CPR Capital Services, in the NSE Co-Location matter for violation of norms.

The regulator has imposed a total fine of Rs 6 lakh on PRB Securities and Rs 12 lakh on CPR Capital Services.

The SEBI said that it had received multiple complaints pertaining to allegations of malpractices with respect to the co-location facility being provided by the National Stock Exchange of India Ltd (NSE).

In the wake of allegations of preferential access to Tick-byTick (TBT) data feed given by the NSE to certain trading members (TMs), the matter was taken up for investigation by the SEBI.

PRB Securities was one of the trading members identified for comprehensive investigation, including forensic audit for primary and secondary server connects.

In the case of PRB Securities, the regulator said that the brokerage was connected to the secondary server for 215 days in the cash market segment during the investigation period and the secondary server connections in the F&O and currency derivatives segments are only on 45 days and 6 days, respectively, during the investigation period.

"I also note that the Noticee was not reprimanded by NSE for the violations, unlike some other brokers who had more frequent secondary server connections," said Adjudicating Officer, Prasanta Mahapatra in the order copy.

"However, it is established that the Noticee has failed to comply with aforesaid guidelines and hence violated the aforesaid provisions of Code of Conduct specified under Stock Broker Regulations, 1992 and PFUTP Regulations, 2003," the order said.

Regarding CPR Capital, a separate order copy said that the noticee connected to the secondary server in the cash market (CM), futures and options (F&O) and currency derivative (CD) segments during the relevant period even after reprimand from the NSE and also failed to provide complete information during the investigation.

The SEBI noted that CPR Capital has failed to comply with the guidelines, also failed to provide complete information during investigation and hence, violated SEBI regulations.

Both the brokerages have been directed to pay the penalty within 45 days of receipt of the order.

In February, SEBI had imposed an overall penalty of over Rs 5 crore on brokerage firm OPG Securities Private Ltd, along with its promoter and MD Sanjay Gupta, and two other Directors in the matter.

OPG Securities used the NSE system to its advantage by hiring Nagbhusan Bhat, who was working with Omnesys Technologies, to figure out which server was working better.

The brokerage also allegedly made certain arrangements with NSE datacentre staffer named Jagdish Joshi who would inform it of the time when the servers would start, and therefore, they could be the first to connect.

The co-location case which dates back to 2015 sparked controversy when a whistleblower wrote to the SEBI alleging the NSE was giving a few high-frequency brokers preferential access to its servers by allowing them to place their servers in the NSE premises that benefited both the parties at the cost of others.