As a broker I never thought that our exchanges were clean. In fact till NSE came, the other big stock exchange BSE (its name was, The Stock Exchange, Bombay) was run like a private club. We knew that. We never pretended that it was a professionally managed organisation. Never.

Then the National Stock Exchange was born and it was well conceived and well started by R H Patil. This is circa 1993 when NSE recruited a lot of professionals (BSE recruitment was not so professional)…and some of us thought it would be different. However if you have read Ayn Rand you realize that if there is a Government organisation you can make it leak. Leak information, money, – whatever you want. And it surely did.

You could not get the settlement postponed (at BSE you could get settlements to be clubbed) or things like that, but you could get other data. As much data as you want. For a price. In fact one of the biggest data peddlers is now doing very well outside the NSE, and I am in no mood to blame him/ her. In fact there have been companies which would get details of the brokers who had short positions on their companies. It will take a book to explain what data is useful and how companies used it. However, suffice to know that getting info leaks from NSE was just as easy as getting it from BSE.

If you are an algo trader (which SEBI says it does not like) and you need speed you need speed of info too. So now the question is not whether data is leaked, it is how quickly the data is given. This means that the traders who have faster access to the data, and software that is faster to execute are benefitting at the cost of the common man. This is very common even in the US. Hopefully the SEC is monitoring that better, but software vendors have their sources. Not sure how tech savvy our regulator is. I have no clue, but some of the things in the past (remember the Hdfc amc front running case?) was a result of some smart technology work. I doubt whether our regulator is alert enough to spot this. Not saying anything because I am staying in a village near Mumbai and am not in touch with the Mumbai shenanigans over the past 12-14 years (retirement has its downside too!!). It will be nice to see Deepak Shenoy’s view on this…

The damn NSE data leakage is worth a probe which should go pretty deep into the software. While at it, probe MCX and FT too. Or whatever is left of that.

It is not a community thing…but you will not be surprised to see the domination of one community. All scams start there, do they not?

http://indiasamvad.co.in/exclusive-market-manipulated-at-national-stock-exchange-scam-runs-into-billions/

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  1. I think this is one more reason it makes sense for small investors to go for Mutual funds as MFs would either be using these same tricks for their benefit. Or they would have sound investment strategie which would make such things useless for the MF

  2. SEBI may not be able to do anything about leaks, insider info, etc. But what it can definitely do, provided it has the will, is to prevent outright fraud on the exchanges.
    For example, you can be an algo/HFT trader (or software), but you should not be allowed to game the system of price discovery of the market by placing micro or nanosecond orders. These are the primary causes of ‘flash crashes’ wherein a large order comes in and goes away with explicit intent of spoofing the terminals with a bogus pending order. Somebody else (a genuine seller) sees this large order and places a corresponding opposite side order, which then leads to a crash, since the nanosecond order has cancelled by then.
    SEBI can simply say that all orders, algo or not, have to be active, without modification, for atleast 1 minute, or even 10 seconds after being placed, and if executed within that time, must be honored by the order placing party. That will immediately kill the HFT misuse that is currently rampant in other developed countries, and will soon be, if there’s no such restriction, in India.

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