The National Stock Exchange (NSE) is under scrutiny from the Securities and Exchange Board of India (SEBI) following allegations that some high-frequency traders manipulated the exchange’s software to execute thousands of unnoticed orders, thereby sidelining other users.

What Happened? Allegedly, traders misused the Trading Access Point (TAP) system back in 2013. However, it remained undiscovered until 2017 when income tax officials unearthed it during their investigation into a separate scandal. This scandal involved former NSE executives, Chitra Ramkrishna and Ravi Narain, according to an Economic Times report.

Recently, based on the findings of a retired judge tasked with investigating the TAP misuse, SEBI issued a notice to NSE.

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Launched in 2008, the TAP system was designed to enable the NSE to charge transaction fees by monitoring the volume of orders that brokers sent. But the traders in question reportedly used special software to bypass TAP, thus avoiding transaction fees.

In 2021, following the market regulator’s direction, NSE appointed retired judge Arvind Sawant to investigate the matter. However, the NSE denied receiving any notice from the regulator concerning the TAP issue in its 2021-22 fiscal annual report.

NSE had applied to settle the issue under the SEBI Settlement Regulations in January 2022, but SEBI returned the application in April 2022, citing an ongoing investigation.

This TAP issue has compounded the NSE’s problems, which is already grappling with the co-location scandal, where traders were accused of receiving preferential treatment.

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