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NSE and Co-location Scam.

So much of discussion has been happening regarding the concept of NSE and colocation. I'm not going to explain about Yogi here. The head of NSE shared confidential information with a person who is not supposed to have access to such information that is the investigation that is happening there. What do you mean by colocation is more important. Coocation essentially refers to a space or a place, which is within the NSE area. What do you mean by this NSE it's a building of national stock exchange and infrastructure is there within this there are certain important computer servers which are located within the vicinity of the server room, there are certain spaces or there are certain areas which are referred to as colocation in more simple words NSE servers are there and in the surrounding area there are certain areas which are identified as colocation, why these are identified as colocation, very simple, the traders they will have to pay a certain amount of fees and they can set up their servers or let's saybtheir systems in this particular area.

The traders especially high frequency traders hfts or the hedge fund managers they will take this particular place set up their systems there and they will have to pay a certain amount of fees to national stock exchange for having provided this particular space. This is colocation illegal. Absolutely no, this is perfectly legal. In NSE, they started allowing colocation from the year 2009 and the scam that has been right there in the newspaper essentially is for a duration of 2010 to 2014. Now, what is this particular scam that is associated with colocation?

Now to understand that, it's a very technical concept, let me go with a very simple example. Let me give a very simple example. Imagine here is a superstore, in the superstore, the vegetables are arranged in certain area, the cereals are arranged in certain area, the other food products, let's say meat, egg, Maggie, biscuits, or the daily usage items which are required for household etc they're arranged in racks. Now imagine I will tell all of you, within one minute, you're allowed to enter into this particular superstore. Pick up whatever you like, go to the counter and simply bill out, I will give you a 50% discount. So here is a situation where superstore is there, I'm telling you go into this within one minute pick up whatever you want and you'll have to get it billed and I will give you a 50% discount but within all of you people I will call let's say 50 people or let's say 10 people on the side and I'll tell them go to lane number three and in the lane number three lower shelf a very big packet is there and the cost of that is very high within the store itself that is a high cost commodity purchase that because you will get higher discount and in addition to this, I will give them the basket or let's I will give them a carrier which moves very fast. So, when the doors will open these particular people will know which place to go what product to pick up and I will tell them go to counter number three the checkout or the system is very fast there you can get it billed very fast. When this example will happen in real life, don't you think those particular 10 people who got a tip from me they will get the benefit from this? That is exactly what happened in this particular colocation scam.

Whenever these particular servers will open up all the servers will have certain amount of information and this information is provided to the traders based on how the traders will log on to the servers the information will be provided to them and that is where the colocation becomes a very important because these particular traders have set up their systems in the colocation which is very in the near vicinity to the main server of NSE, they will be able to log onto the server much faster and enter into trade settlement much faster, they'll be able to log onto the server much faster because they are very nearby to the server. But here comes a question that it doesn't make any difference it is the internet, I can get access anywhere. Yes, you're right but imagine the situation. What if I give you a mobile phone having 2g data and I have a 4g or let's say a 5g data mobile phone, both of us will open let's say Youtube page both of us will play one of the videos, in which of the systems do you think the mobile will buffer? That is exactly what I'm saying, the traders will have access to these particular NSE servers but they're spread throughout India. But here are certain amount of traders, a number of traders who are set up very close to this particular location of a server, they will log on to the server very soon they will get the first access to information they will settle the trades much faster even a millisecond is more than sufficient for them to gain from this particular trading assets.

So what is a scam, scam is very simple. I told one person that many servers are there data will be provided based on at what time the traders will log in. There are again allegations. The allegation is there was a tip which was given to some of these particular traders as to which server will open at what time and they were able to log on to this particular server, place the trades much faster and were able to make huge amount of profit as such and this is essentially is the concept of NSE and colocation scam.


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