Looks like the blog is being keenly followed …

Extreme reactions of a personal nature were a little unexpected …

Over the last couple of years, particularly since 2019, I have attempted to give details of various features and aspects of colocation trading, also through my blog. I was always of the impression that even though I have taken a lot of trouble to learn about the technology involved, it is hardly getting any audience. However, the first confirmation that my this blog is being keenly followed came today. Almost immediately after the last blog I posted today, friends brought to my notice some seriously shocking reactions. However, threatening and name calling were NOT the kind of reactions I was expecting. Over the last 15 years, after seeking voluntary retirement from GOI service, I have advised hundreds of market participants and listed companies in several matters. In my blog, I have clearly stated that I have advised certain entities even in the colocation matter right from 2019. So I find it amazing that today it was identified as a “nice find”. Today, after my last blog, I have been threatened by one gentleman of CBI action against me in the “cover-up” of colocation matter. (Reproduced below)

I started writing about the NSE colocation case since early 2019. I have covered almost all relevant aspects of the colocation trading. Primarily my interest has been the technological aspects which draw parallels with global exchanges. I have covered in detail the potential size of HFT markets in India and also technologies involved in colocation. I wrote a piece about colocation and exchange architecture. I have written detailed pieces on each part of data dissemination systems and how the TCP architecture on exchange was already pretty random due to the load on the system. In addition I also covered the high-handedness of NSE in this matter. Recently, I covered how colocation trading does not harm retail trading. In-fact retail traders are benefited by the liquidity brought by HFT and reduced impact cost of trading.

In these last 3 years, I haven’t had any such reaction to my blogs. Mostly because, I think, the technical aspects are pretty deep and it asks tough questions of the readers. The blog shows a completely different aspect of this controversy, which counters the hearsay and the misleading beliefs being peddled. Most of my blogs are backed by data and the important parts of this data have been forensically audited. Various reports by auditors, advisory bodies and professors all have been studied in detail before I have put out anything in my blogs.

So I wasn’t expecting any such reaction to my latest blog now as well. But, this time something has obviously changed and I am being threatened of CBI action and my antecedents are being questioned. It would have been nice if questions were raised on the detailed content of my blog and the data rather than abusing me online. Additionally, it appears that these abusers also think that they can direct various agencies to do their bidding.

Based on my understanding, I am requesting the so called “experts” to answer the following questions:-

1. Are there multiple speeds to connect to the exchanges even today, outside of colocation? Yes or No?

2. Did brokers have differential speeds to connect to exchanges before 2010? Yes or No?

3. Does colocation even today offer faster way to connect to the exchange as compared to non-colocated members? Yes or No?

4. Differentiated access has always existed and will likely exist for foreseeable futures in exchanges. Surely, differentiated access should not be an issue specific to 2010–2014. Yes or No?

5. Is colocation and HFT banned in India today? Is it banned in any other country? If HFT and colocation per se are villains, why do these continue to grow everywhere and are not banned?

6. All reports commissioned by SEBI/NSE (including Deloitte, E&Y, ISB) and Pasamurthy Report commissioned by one of the noticees, in the matter, clearly bring out that almost all brokers in colocation were logging in first/early to the TBT servers and were connecting regularly to the secondary TBT servers on different days / time. Have these experts taken the trouble to see what was the frequency of such logins by different brokers in different segments. I’m sure, they have all the audit reports with them and all these facts are there in these reports for everybody to see. So somebody needs to explain why only a single broker is being named in certain sections of media — is this because they don’t want to admit their mistake of their earlier reporting…. “You can teach a man, but not his ego.”

7. The data in the financial forensic analysis shows that NO benefit was attributable to first/early login and to secondary TBT server connections (observed by comparing daily revenue across days). Is there any hard evidence (backed by data or facts) to demonstrate any benefit to anyone by early login or secondary login?

8. Various audit reports have bounded the size of total colocation revenue of 30 brokers (not the profit, which will be much lesser) to be close to Rs. 3000 crore for the 5 year period 2010–2015. This is a far cry from the Rs. 75000 crore number being peddled in the media. If the Rs. 75000 crore figure is even remotely true, where is the idea of rest of the alleged windfall gain coming from ?

It is very clear that these “experts” are barking up the wrong tree and are naively misleading the decision makers. A “scam” of this proportion, if it has taken place, can’t be found in colocation nano-second advantages. This is ONLY possible when someone had access to the “confidential” client and margin data from the exchange. Such data can be used to manipulate the market where other clients and their margins can be squeezed out. You don’t need colocation for that … you only need to have the wrong or I might say “right” access to the exchange systems/management / confidential data. It may please be noted that I’m not suggesting or insinuating that this has actually taken place at any Exchange. This is just a theoretical take.

One thing more, my comments about the BSE offering office space to brokers have been twisted conveniently out of context. In fact, I have never insinuated any wrong doing on the part of BSE at all. The point which I was trying to explain was very simple. BOLT was setup in 1995. Once electronic trading was introduced, whether the broker who had his office and servers in the BSE building had any speed advantage as compared to another BSE broker whose office/ server was not in BSE building?

I have very clearly stated time and again that there were a lot of issues on which NSE needed to explain its actions. Some of these issues to my mind maybe violations of established norms and regulations by NSE. But unlike these “experts” I am not competent to judge.