The 'NSE co-location' case is a security market scam that surfaced owing to the courage of a whistle-blower in 2015, in which some brokers and National Stock Exchange (“NSE”) officials were involved in sabotaging the system for securing gains during the market trade. The first question which arises in this instance is – What do we mean by 'co-location' in this regard? Co-location is a service given by the NSE allowing trading members to have their own servers within the exchange's data centre, paying a fee for the same. This enables brokers to achieve faster access to pricing data and to execute trades in a time efficient manner by reducing the time in data transmission. This gave an edge to the brokers who used this facility against who did not use the same. Therefore, opting for 'co-location' gave brokers the threefold advantage – (1) proximity to the server; (2) reduced time in execution of trade deals; and (3) edge over other competing traders.
Key Aspects of the Case
NSE faced severe allegations in this case wherein it was alleged that some brokers manipulated the system by gaining access to early log in to the portal and to dark fibre. A dark fibre or unlit fibre in relation to network connectivity, refers to a passive optical fibre cable which is available for use in fibre-optic communication, and is neither connected to any active equipment nor has any data flowing through it. It has a capacity to give trader a split-second faster access to the pricing data of a stock exchange.
In 2015, a whistle-blower under the name “Ken Fong” wrote a letter to SEBI marking senior journalist Sucheta Dalal, exposing the case of NSE colocation. Following this, journalist Sucheta Dalal wrote an exposing article in Moneylife's portal accusing officials of NSE of leaking data to a certain group of individuals for undue advantage and minting profits. In response, NSE filed a defamation case against Moneylife demanding damages to an extent of INR 100 crores. However, NSE later withdrew the case by paying INR 50 lakhs in pursuance to the order of the court.
In 2019, as per the investigation by Securities Exchange Board of India (“SEBI”), there were various irregularities which came into picture as a result of which SEBI directed NSE to deposit a sum of INR 624.89 crores in the alleged case which allowed the usage of dark fibre. Not only this, SEBI also prohibited seven top officials who have been former Managing Directors and Chief Executive Officers from getting associated with any listed company or any market intermediary for a period of five years. SEBI also directed NSE to not introduce any new derivative product in the market for the next six months.
Later, in 2023, the Securities Appellate Tribunal (“SAT”) reduced the disgorgement amount to a significant low of INR 100 crores and also removed all the fraud allegations. Not only this, the NSE also received INR 300 crore back from SEBI after the Supreme Court of India accepted SEBI's plea of hearing appeal against SAT's order in the colocation case.
In 2024, SEBI dropped proceedings against NSE and many other officials involved in the case. The reason stated by SEBI was of insufficient evidence of their involvement and collusion. Recently, in June 2025, NSE offered to settle the colocation and dark fibre cases by offering a total of INR 1388 crores. With this the NSE might be in the process of reviving its IPO plans which has been long due to all the regulatory battles fought by the institution in the past few years.
Observations and other Developments
Amidst the investigations by SEBI, there were several Show Cause Notices issued to the accused entities and individuals in a span of time between 2017-2019 during the whole process. After the Show Cause Notice was served to the NSE, the top officials of NSE, like Chitra Ramkrishna, Ravi Narain, Suprabhat Lala and other people, resigned from their posts.
After this, under the alternate dispute resolution mechanism, many officials applied to settle the matter under consent mechanism, i.e., by agreeing to the penalisation without the admission or denial of the accusation. However, these settlement applications were all put in vain.
The Madras High Court was also looped into the case under a Public Interest Litigation (“PIL”) filed by Chennai Financial Markets and Accountability exposing many key aspects of this case.
The investigations of SEBI, CBI and other agencies surfaced the tiniest of the details of this case to correct the wrongs in the infrastructure and to make market practices fair and trustworthy. However, the lack of evidence lead to the dropping of the case by SEBI. The positive outcome, however, was that the issue was surfaced which helped in scanning of the system and to eliminate loopholes, if any.
The Indian financial markets got exposed by the NSE colocation case despite having a strong regulator like SEBI at top. Market manipulation by collusion of the accused NSE officials with the brokers have not only lost the trust on NSE but has somewhere shaken the credibility of the whole system per se.
While the whole episode surfaced, the question which remains is the reason as to why SEBI suddenly dropped all the allegations against NSE and its officials. Principles of proportionality and Supreme Court regarding SEBI's approach as “regulatory overreach” also made it difficult for SEBI in its approach. The balance between restoring confidence of the masses in the system and answering the real questions of safety by making the process loophole free has been a challenge throughout.
After a long battle of investigation in this case, it shall be ensured that such malpractices are not repeated and that there is transparency and fairness in the system. The integrity of Indian financial market is the roadmap to India's economic success, which shall be protected and upheld always.
Author: Varun Singh, Founder, Foresight Law India. Views are personal.