NSE FILES CONSENT PLEA IN CO-LOCATION CASE

 

National Stock Exchange ImageThe National Stock Exchange (NSE) has filed a consent application with the Securities and Exchange Board of India (SEBI) to settle the co-location matter that has been under regulatory probe for more than two years.

Consent mechanism refers to a settlement procedure wherein entities are directed to pay an amount without admission or denial of any wrongdoing. NSE has used this mechanism to end the more than two-year long co-location matter.

What is this co-location case?

To read in detail about the case, read this: National Stock Exchange’s Co-location Case.

Co-location refers to the facility where brokerages can house their servers inside the exchange to get better speed for trade execution. Since the broker’s server is placed closed to that of exchange, the latency is reduced.

NSE started this facility in February 2010.

In 2015, the SEBI received three complaints against the exchange alleging that certain brokers with co-location servers were getting access to market data before others who also had such facilities within the NSE. The complaint also alleged that the employees of the NSE were also involved in the irregularities.

Since then, the watchdog – SEBI – is investigating the case.

Recently, the watchdog’s chairman – Ajay Tyagi – termed the co-location case as “a serious matter” and said that the NSE may have to refile papers for its Rs. 10,000 crore IPO after addressing issues related to alleged preferential access given to some brokers. The exchange had, in December, filed its draft paper with SEBI for Rs. 10,000 crore IPO and was awaiting approval.

 

Reference(s):

The Hindu Newspaper [You can download ‘The Hindu’ newspaper for free from this facebook page UPSC Aspirants Forum]

Bitcoin trade may come under SEBI

Image showing Bitcoin

The government is considering the introduction of a regulatory regime for virtual or crypto currencies, such as Bitcoin, that could enable the levy of GST on their sale.

The new regime may possibly bring their trading under the oversight of the stock market regulator, Securities and Exchange Board of India (SEBI).

The idea is to treat such currency in a manner similar to gold sold digitally, so that it can be traded on registered exchanges in a bid to “promote” a formal tax base, while keeping a tab on their use for illegal activities such as money laundering, terror funding and drug trafficking.

What are crypto currencies?

Read in detail about what is cryptocurreny and how does it works?

A cryptocurrency (or crypto currency) is a digital asset designed to work as a medium of exchange using cryptography to secure the transactions and to control the creation of additional units of currency. A cryptocurrency is difficult to counterfeit because of this security feature.

It allows transacting parties to remain anonymous while confirming that the transaction is a valid one.

It is not owned or controlled by any institution – governments or private.

Bitcoin became the first decentralised cryptocurrency in 2009. Since then, numerous cryptocurrencies have been created like Ethereum, Ripple, etc.

What are the advantages and disadvantages of cryptocurrency?

Advantages:

  • Cryptocurrencies make it easier to transfer funds b/w two parties in a transaction; these transfers are facilitated through the use of public and private keys for security purposes.
  • These fund transfers are done with minimal processing fees, allowing users to avoid the steep fees charged by most banks and financial institutions for wire transfers.
  • It is difficult to counterfeit cryptocurrencies.
  • Due to the fact that Bitcoin transactions cannot be reversed, do not carry with them personal information, and are secure, merchants are protected from potential losses that might occur from fraud.

Disadvantages:

  • As cryptocurrencies are virtual and do not have a central repository, a digital cryptocurrency balance can be wiped out by a computer crash if the backup copy of the holdings doesn’t exist.
  • Since prices are based on supply and demand, the rate at which a cryptocurrency can be exchanged for another currency can fluctuate widely.
  • Cryptocurrencies are not immune to the threat of hacking. In Bitcoin’s short history, the company has been subject to over 40 thefts, including a few that exceeded S1 million in value

Why is government considering a regulatory regime for cryptocurrency and not banning it altogether as it is used for various nefarious activities?

The discussion whether crypto currencies should be banned or regulated has been on for some time. In a recent meeting chaired by Finance Minister Arun Jaitley, the pros and cons for both aspects were put forward. A proposal to ban such currency altogether was also considered at the meeting.

On banning it, officials attending the meeting were of the view that banning will give a clear message that all related activities are illegal and disincentivise those interested in taking speculative risks, but it was pointed out that any such move will impede tax collection on gains made in such activities and that regulating the currency instead would give a boost to blockchain technology, encourage the development of supervision ecosystem and promote a formal tax base.

 

References:

An article from The Hindu titled “Bitcoin trade may come under SEBI”

Investopedia

National Stock Exchange’s Co-location Case

Recently, watchdog SEBI’s chairman called the NSE co-location case as “serious”. So what is the NSE co-location case all about? Below is the explanation of the same:

National Stock Exchange Image

Source: LiveMint

What is co-location?

Co-location refers to the facility where brokerages can house their servers inside the exchange to get better speed for trade execution. Since, the broker’s server is placed closed to that of exchange, the latency is reduced.

NSE started offering this facility in February 2010.

What is the case?

In 2015, SEBI received three complaints against the exchange alleging that certain brokers with co-location servers were getting access to market data before the other who also had such facilities within NSE. The complaint also alleged that the employees of NSE were also involved in the irregularities.

How did the SEBI and NSE reacted to the complaints?

Following complaints about co-location facility of the exchange, a SEBI-appointed technical advisory committee (TAC) had initiated an examination and found instances of breach of fair access rules by the exchange.

In September 2016, after the findings made by SEBI’s advisory committee, the regulator asked the NSE board to initiate an independent examination of its systems and process. The exchange’s board then appointed Deloitte India to conduct a forensic investigation.

Deloitte in its report highlighted that there were some lapses related to procedures and processes and it could have been that an NSE employee was also involved. It also stated that the technology used by the NSE earlier to offer co-location service was prone to manipulation in terms of lags in information dissemination.

Based on the Deloitte report, NSE decided to look at every single aspect of co-location to ensure everything is transparent and nothing is left to unstated practices.

What is the current status?

Currently, the NSE is strengthening its policies and procedures related to co-location facilities. SEBI, at the same time, is looking into the allegations of selective brokerages getting preferential access at the exchange.

The National Stock Exchange (NSE) may have to refile papers for its ₹10,000- crore IPO (Initial Public Offering) after addressing issues related to alleged preferential access given to some brokers, watchdog SEBI’s Chairman Ajay Tyagi said, terming the co-location case as “a serious matter”. The exchange had, in December, filed its draft papers with SEBI for a Rs. 10,000 IPO and was awaiting SEBI’s approval.

 

References:

http://www.thehindu.com/todays-paper/tp-business/SEBI-stung-NSE-to-reset-co-location-code/article17316206.ece

http://www.thehindu.com/business/Industry/nse-co-location-case-serious-says-sebi/article19205038.ece