MUMBAI: The National Stock Exchange (NSE) has filed a defamation suit against the business news magazine Moneylife for alleging that insiders at the exchange gave unfair advantage to certain high-frequency (algorithmic) traders.
A press release from the NSE, which doesn’t name the magazine, said the exchange has sought withdrawal of unsubstantiated and misleading reports against it and “has made a claim of ₹100 crore (which can be revised upwards)” in the Bombay High Court.
The release added that “since inception, NSE has been maintaining a high degree of surveillance and integrity in its day-to-day operation (and) strictly adheres to the rules, regulations and guidelines issued by the regulators from time to time”
On June 19, Moneylife published a letter it received from a whistleblower — who works in the technology team of a Singapore-based hedge fund — alleging that the market manipulation taking place at the exchange allowed “certain vested brokers to get market price information ahead of the rest of the market”
A follow-up report by the magazine’s Managing Editor in early July alleged that the senior management at the NSE profited from allowing certain high-frequency traders to play the system while capital markets regulator SEBI has not acted on the whistleblower’s allegations either.
Algorithmic trading (or high frequency trading) uses computer algorithms to analyse market data, deploy appropriate trading strategies and execute trades, all at minimal cost. While the sheer number of trades provides liquidity to the market, high-frequency trades are often pulled up for distorting market prices away from the fundamental value of securities. Besides, there has been talk of malpractices as well.