The issue of co-location has come into the limelight once again in the wake of the latest order by the Securities and Exchange Board of India (SEBI) sanctioning former National Stock Exchange (NSE) MD and CEO Chitra Ramkrishna over decisions taken by her under the alleged influence of a mysterious ‘yogi’.
About:
In its February 11 order, SEBI had observed that the fact of Ms. Ramkrishna having shared confidential internal NSE information with an unknown person had come to light during the regulator’s probe of the co-location matter.
What is co-location?
In 2009, the NSE started to offer co-location services to members of the exchange.
Co-location allows a member to set up his server in a specifically earmarked data centre within the NSE’s exchange premises for a certain price.
And even though this data centre is located in a different wing from the exchange’s trading systems, the relative proximity allows members wishing to gain access to the entirety of buy and sell orders sent to the exchange by market participants, or tick-by-tick data, a headstart of a few microseconds or nanoseconds.
What is the controversy?
Co-location per se is not illegal. Stock exchanges across the world allow the practice to flourish as a paid service. The SEBI, in fact, had allowed exchanges to offer co-location in 2008.
However, a whistleblower in 2015 alleged that some exchange members were able to manipulate NSE’s co-location services to their own benefit with the support of certain officials in NSE’s IT department.
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