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The NSE co-location scam relates to the market manipulation at the National Stock Exchange of India, India’s leading stock exchange. Allegedly select players obtained market price information ahead of the rest of the market, enabling them to front run the rest of the market, possibly breaching the NSE’s purpose of demutualisation exchange governance and its robust transparency-based mechanism. The alleged connivance of insiders by rigging NSE’s algo-trading and use of co-located servers ensured substantial profits to a set of brokers. This widespread market fraud came to light when markets’ regulator, the Securities and Exchange Board of India (SEBI), received the first anonymous complaint through a whistle-blower’s letter in January 2015. The whistle-blower alleged that trading members were able to capitalise on advance knowledge by colluding with some exchange officials. The overall default amount through NSE’s high-frequency trading (HFT) is estimated to be ₹500 billion over five years.
The NSE co-location case is under investigation by the Central Bureau of Investigation (CBI), the Securities and Exchange Board of India (SEBI) and the Income Tax Department who are probing the involvement of NSE and SEBI officials, as well as NSE’s former and current executives and brokerages.
In a recent verdict, the Madras High Court issued a notice to SEBI, MCA, ED in response to a Public Interest Litigation (PIL) filed by the Chennai Financial Markets and Accountability (CFMA).