Eyeing a major technological leap, the National Stock Exchange (NSE) is exploring an “unsupervised machine learning model” to insert anomalies into algorithmic orders. Machine learning algorithms or algorithms monitor trading results and detect patterns that determine the rise or fall of stock prices.

In its 2021-22 annual report, the exchange said that over the years it has developed a well-planned market surveillance mechanism, backed by a strong technical architecture. The exchange’s monitoring system identifies violations and ensures that identified violations are managed in a timely manner.

To upgrade and strengthen its surveillance-related capabilities, the exchange rolled out key initiatives in 2021-22, including deploying alerts to detect market abuse in stock options OTM (over-the-counter) contracts, capturing multiple-leg reversal cases, and Market abuse in which options are traded away from prices without changing the underlying.

Additionally, “exchanges are exploring the use of ‘unsupervised machine learning models’ to detect anomalies in algorithmic orderbooks,” the annual report states.

Algorithmic trading or “algorithmic” in market terms refers to orders that are generated at super-fast speeds by using advanced mathematical models that involve automated execution of trades, primarily used by large institutional investors.

Additionally, the exchange aims to modernize its trading platform to “build a highly scalable, resilient and fault-tolerant trading application component capable of processing 1 million orders per second.”

Apart from technological advancement measures, the exchange also paid Rs. In a case related to a technical glitch that occurred in February last year, SEBI paid SEBI $2.5 million “without admitting any wrongdoing by the NSE”. The matter is subject to further review and discussion by the capital market regulator.

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On February 24, 2021, NSE’s trading system was down for four hours due to a technical glitch. The exchange’s trading system was suspended due to certain issues with its link with the telecommunications service provider, which in turn affected the company’s storage area network (SAN) system, leaving host servers unable to access the main SAN.

This has also rendered NSE Clearing Limited (NCL) risk management systems and other systems such as clearing and settlement, indexing and monitoring systems unusable.

“SEBI, in its letter dated July 2, 2021, directed NSE and NCL to pay financial incentives of Rs 2.5 lakh each. The above amounts were to be paid by NSE on July 12, 2021 and by NCL on July 14, 2021 ,” the annual report noted.

In addition, the exchange said it has followed the Standard Operating Procedure (SOP) communicated in the SEBI communication and communicated the SOP to all Market Infrastructure Institutions (MII) – stock exchanges, clearing firms and depositories – in order to Report on MII’s technical glitches and enforceable financial disincentives.

Apart from this, the Securities and Exchange Board of India (SEBI) has not dealt with other matters related to the exchange.

In April 2019, the regulator had returned the consent application submitted by the NSE and had passed orders on three display-cause notices related to exchange custody facilities, dark fiber, and governance and conflict of interest matters.

According to the first order, SEBI passed the NSE’s instructions to hand over Rs 6.25 crore plus interest, which had been remitted to the interest-bearing account by the exchange, and certain restrictive instructions.

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In the second order, it requested the deposit of Rs 62.58 crore plus interest which has been remitted by the NSE for interest and in the third order it has passed certain non-monetary and remedial instructions from the NSE.

The NSE appealed all three orders in the Securities Appeals Tribunal (SAT). Those appeals are awaiting a final hearing, with the exception of the escrow issue, which has been heard by the SAT and is reserved for order. In addition, the NSE has received notices of rulings covering the three orders.

“SEBI has passed an instruction to impose a fine of Rs 1 crore on the custodial award matter which has been challenged by NSE prior to SAT which remains in said direction. The second and third matters are pending before SEBI, ‘ the report noted.



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