Sebi's order on NSE's co-location (colo) case has put the spotlight on regulations around colo facilities and algorithm (algo) trading and the fact that it is hard to prove fraud in such cases.
Although Sebi asked the NSE to disgorge Rs 1,100 crore, it could not establish if the exchange has violated regulations. The penalty pertains to lax corporate governance and is only half the Rs 2,000 crore it earned from colo between September 2016 and December 2018.
At a time when artificial intelligence (AI)-based software programmes are able to exploit millisecond changes in stock prices, it is only obvious that the quantum of high-frequency trades (HFTs) will swell.
Colo, dark fibre and AI are the future. Meanwhile, issues around unfair access, information asymmetry and possibility of flash crash linger on. Last year, Sebi had strengthened guidelines around algo trading and colo. But a robust policy having stringent quantifiable rules to cope with HFTs and other technological advances is the need of hour.
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