Brokers call for India to probe claims of unfair exchange access

New Delhi / Bloomberg

A panel advising India’s markets regulator found evidence that high-frequency traders gained unfair access to the nation’s biggest stock exchange, prompting two of the country’s largest brokerage associations to call for a formal investigation.
The National Stock Exchange of India Ltd. “violated norms of fair access,” according to a copy of the panel’s internal report seen by Bloomberg News. The committee recommended a probe into whether NSE officials worked with OPG Securities Pvt. to give the New Delhi-based trading firm preferential access. It also called for an investigation into whether Way2Wealth Brokers Pvt. benefited from a dedicated fiber-optic line between NSE and BSE Ltd., India’s second-biggest bourse.
The NSE declined to comment, while BSE denied any suggestions it provides preferential treatment. OPG denied any wrongdoing and said it hasn’t been contacted by regulators. Way2Wealth didn’t immediately respond to a request for comment. The Securities and Exchange Board of India didn’t reply to an e-mailed query on the panel’s conclusions, which were first reported by Mint newspaper on April 5.
“SEBI should investigate whether someone got preferential access and frame comprehensive guidelines to stop it once and for all,” said Naresh Maheshwari, president of the Association of National Exchanges Members of India, a group of 900 brokers. “HFT and other communication technologies are perceived to be against retail or traditional investors.”
The allegations of unequal market access in India, the biggest emerging market for computerized trades, echo complaints about how modern markets operate around the world. Critics say exchanges go too far to cater to high-speed traders, whose strategies depend on placing orders faster than anyone else. Regulators from Washington to Beijing are in the process of evaluating what, if any, curbs are warranted.
High-frequency and algorithmic traders have turned from small players into a dominant force on Indian markets over the past five years, enabled by a race for speed between the nation’s top exchanges that cut transaction times to fractions of a second. Such strategies now account for 40 percent of total volumes in India, the highest proportion in the developing world and up from the low single digits five years ago, according to Aite Group, a Boston-based consulting firm.

Fair Access
The panel’s findings raise questions as to whether unequal access was a byproduct of that rapid growth, or the result of deliberate decisions that gave select traders an advantage over others. India’s Brokers Forum, an association with 800 members, will make a formal request to SEBI urging a probe into the panel’s findings, said Jitendra Panda, a governing board member.
“We will write to SEBI to urge a speedy investigation into these allegations,” Panda said. “Such practices should be stopped immediately and exchanges should ensure free, fair access.” The SEBI panel’s report, which hasn’t been released by the regulator, says that between 2012 and 2014, NSE handled orders to trade on a first-come, first-served basis.