NSE Co-location Scam - Basic Question

[Arjun_Rao]

To all the gurus on the forum…

I am trying to understand exactly how certain brokers, who had preferential access to NSE servers, were making money.

I know that the orders placed by these brokers were filled first. But as far as I am concerned, the speed of execution has never been an issue in trading. What really mattered always whether I was right about the direction of the trade or not.

So, how does it matter if some of these brokers were able to get their orders filled first? If they were wrong about the direction of the trade, wouldn’t they be losing money anyway? For example, if these guys were to place buy orders on Reliance (which has been falling non stop in last 3 days) and their orders were filled first, wouldn’t they still be losing money??

What am I missing here? Did they have access to more information than the rest of us that somehow revealed the direction of the stock movement in advance? What exactly was that information? Level 2/3 data may be??

Any explanation would be greatly appreciated! I am going crazy thinking about this

@nithin, @Karthik, @Neha_Raghuraman, @siva, ( and all other gurus that i don’t know,…I am new here)

[Morpheus]

@Arjun_Rao

Any explanation would be greatly appreciated!

I think, they did not pay any STT.

The co-location servers were connected with a dark fibre, so the tax department could not figure out what was been bought and sold inside this room.

Please correct me if I am wrong.

[holybull]

For normal users there is a split second delay in the data that comes through some of these brokers, this is a great disadvantage for high frequency traders. Furthermore, nse platform itself is crummy, the 5 paisa increments for securities is clearly designed to increase volatility and favor institutional traders.

[nithin]

@Arjun_Rao

What am I missing here? Did they have access to more information than the rest of us that somehow revealed the direction of the stock movement in advance? What exactly was that information? Level 2/3 data may be??

Any explanation would be greatly appreciated! I am going crazy thinking about this

Have answered here before

As a retail investor/trader, how has the NSE colo issue affected me?

@nithin In continuation of the below topic and the link to the SEBI order on NSE in the colo issue that you shared I am part of a bunch of trading communities. From yesterday many seem to be blaming some of their losses to NSE, Colo etc. How would this issue have affected me as a retail investor. Does Colo etc is detrimental to retail investor/trader interest?

[Arjun_Rao]

@nithin, YOU. THE BOSS !

[vishnux]

I think this has happened long back . There were two server in NSE , primary and secondary(backup) , 4 or 5 companies got access to this secondary and they getting the price ticks half a second earlier and they were getting good profit.

How sebi found this is , when they checked logs or something , there where 4 or 5 companies , whose orders are alone being in top , then they backtraced and found whats happening.

[Shivam_Gupta]

I didn’t get one thing. Being a private organization NSE and BSE have prerogative to provide their facilities to their customers on preferential basis. Pay more get more (like other organizations, even govt financial institutions provide services on preferential basis). Am I missing anything here? @nithin @siva

[dheeraj]

It is responsibility of SEBI to safeguard interests of minority Shareholder(At least on papers). Stock exchanges are regulated by SEBI. Giving preferential access to any entity apparently means being unfair to smaller players.

I guess that explains it

[siva]

@Shivam_Gupta

I didn’t get one thing. Being a private organization NSE and BSE have prerogative to provide their facilities to their customers on preferential basis. Pay more get more (like other organizations, even govt financial institutions provide services on preferential basis). Am I missing anything here?

End of the NSE is also a for profit organisation, nothing wrong in it, across the world the same is followed.

[Shivam_Gupta]

exactly !! then why SEBI imposed fine on NSE ?

[siva]

It can offer colo to who pay them but should not discriminate among the colo users.