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In a major setback for the National Stock Exchange (NSE), the Securities and Exchange Board of India (SEBI) has imposed a penalty of Rs 1 crore on the bourse in the co-location case for failing to ensure a level playing field for trading members subscribing to its TBT (Tick-by-Tick) data feed system.

The capital market regulator has also penalised former MDs and CEOs of NSE, Ravi Narain and Chitra Ramakrishna, with a fine of Rs 25 lakh each.

The SEBI order observed that the violations in this case are serious in nature, even though there are no investor complaints on record arising out of such violations.

"Such nature of default with regard to non-adherence to the laid down obligations under the SECC regulations as observed in this case would compromise the regulatory framework and should be dealt with by imposing monetary penalty on the noticees so as to send an effective message to the market participants as a whole," it said, adding that the violation has continued for a long period of time.

SEBI noted unequal access is apparent at different stages of the concerned technology process.

"As brought out earlier, many trading members had repeatedly resorted to accessing the Secondary Server without any checks and balances and actions on the part of the first-level regulator except for certain emails/ advisories. Thus, NSE as a Stock Exchange failed to ensure a level playing field for trading members subscribing to its TBT data feed system," said the order.

Review of TBT system architecture indicated data was disseminated to members in a sequential manner whereby the member who connected first to the POP server received the ticks (market feed) before the members who connected later. Hence, the system architecture of the TCP-based TBT system was prone to manipulation, it said.