Flaw in Tick by Tick NSE server: Are stock brokers taking advantage?

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Bengaluru, June 29: Is a flaw in the NSE's Tick by Tick server giving some stock brokers an advantage? There have been complaints that the lesser crowded servers tend to give out information sooner which has given a select few brokers the advantage.

Complaints alleging unfair practice and unfair advantage over the market have come to light. It has been alleged that the Tick by Tick or the TBT does not relay information at the same time all through the day. Those who log in sooner and get access to a lesser crowded server are at an advantage the entire day since this server tends to relay information sooner.

Flaw in Tick by Tick NSE server

Grabbing the lesser crowded servers:

Complaints of some brokers being able to trade better in the markets as they seem to have advance information have been made in the past as well. While there are many allegations about the various types of modus operandi involved in getting faster information, this particular one relating to the TBT is interesting.

The allegation is that some brokers are getting hold of the lesser crowded servers. The TBT reflects every new order price that comes into the exchange system. For instance is one server relaying the TBT has 25 persons it tends to relay the information faster than the one which has 30 persons logged in. It is a clear flaw and this ought not to be the case, complaints to the NSE have alleged.

Complainants have stated that each one should be relayed the information at the same time irrespective of the number of people logged into the particular server. Further it has also been alleged that this is a flaw in the system which has been used by persons who are aware of this.

Manipulating the system:

It is further alleged that the flaw in the system was picked up by some insiders in the NSE. These persons have selected a few brokers who are given access to the server that logs in first and also those which are lesser crowded.

The broker connected to the first server would get the price information ahead of the rest. Moreover the price information on such servers remain faster compared to the rest of the servers all through the day, the complaints have also stated. This has given these select brokers the advantage to manipulate the markets.

The complaints also state that there is a nexus involved in this. Some insiders have helped brokers get the first mover advantage. It is stated that all the TBT servers ought to relay the information about the market price at the same time and speed. There is a desperate need to put a mechanism in place to rectify this flaw, the complainants have alleged while also seeking a probe into those NSE insiders who facilitate these brokers.

Brokers under the scanner:

It was only recently that the SEBI had placed under watch five stock brokers for for siphoning off securities and funds worth Rs 500 crore from investor accounts to foreign locations. This was a clear indicator of how vulnerable the system is.

The investigation that was conducted by SEBI shows that 5 stock brokers had siphoned off securities and funds worth Rs 500 crore from investor accounts to Singapore and Switzerland. All these New Delhi based brokers had diverted money from the accounts of their clients and parked it outside the country.

It was revealed that the same was done for their own personal gains. Ironically some of these brokers who were issued with a show cause notice were not even at their addresses. The notices were returned, which indicates that some had given fake addresses with an intention of siphoning of securities and investor money.

Several investors had complained about non-receipt of funds. These brokers under the scanner had even given an undertaking to the National Stock Exchange that the claims would be settled. However this was never done, the SEBI had noticed.

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