Scandal or Scare: The Co-Location Affair That Shook Markets
Bombay Stock Exchange
Between scandal and scare, the reckoning never came—and until it does, India’s temple of finance will be haunted by ghosts of fraud and fear.
By P SESH KUMAR
NEW DELHI, September 5, 2025 — Was it a grand betrayal of fairness or a media-fuelled panic that spooked small investors? Few episodes in India’s financial history have triggered as much noise as the co-location affair at the country’s largest stock exchange.
For years, headlines thundered about mystics pulling strings, billion-dollar thefts in nanoseconds, and investors looted in silence. To some, it was the biggest market scandal since liberalisation, proof that institutions could be captured and watchdogs tamed. To others, it was a technical blunder spun into a morality play by vested interests, bungling investigators, and a sensationalist press eager for drama.
Between the two narratives — scandal or scare — lies the uncomfortable truth: whatever the facts, trust in markets took the deepest hit.
TIMELINE
- 2010 – The beginning
- The co-location facility was launched by the NSE in 2010.
- Architecture: brokers could place their servers in the exchange premises, but the design was “unicast” — giving an advantage to whoever logged in first.
- 2015 – Whistleblower complaints
- A detailed complaint was sent to SEBI in January 2015, alleging that some brokers were getting preferential access.
- This triggered SEBI’s technical advisory committee review, followed by forensic audits by IIT Bombay and Deloitte.
- 2018 – CBI enters the picture
- After years of regulatory inquiries, the CBI registered an FIR in May 2018 against unnamed NSE and SEBI officials and certain brokers for alleged abuse of the co-location facility.³
- The FIR cited offences under criminal conspiracy, cheating, and corruption.
- 2022 – Chargesheet filed
- In April 2022, the CBI filed its first chargesheet.
- Instead of focusing on systemic rigging, it zoomed in on the appointment and pay package of a senior NSE official.
- Delhi High Court Judge Sudhir Kumar Jain criticised this as “piecemeal” in September 2022.⁴
- August 2025 – Closure report
- The CBI filed a closure report in August 2025 before the Special CBI Court in Delhi, saying there was “no sufficient prosecutable evidence” of market manipulation.
- Court order – August 2025
- The Special CBI Court accepted the closure report in August 2025, bringing the criminal probe to an end.
The Case for Scandal: A Market Rigged
The affair began with a modern idea that went wrong in its execution. Co-location — letting brokers place servers inside the exchange for faster trades — was standard across the world. But in India it was built on a unicast system, which delivered data sequentially instead of simultaneously. Those who logged in first saw the market a fraction of a second earlier than everyone else.
In high-frequency trading, fractions matter. Nanoseconds meant insiders could place trades ahead of the pack and pocket profits without risk. Add to this the leakage of server start-up times, the routing of select players to faster backup servers, and the privileged distribution of tick-by-tick data dressed up as “research,” and the game looked loaded.
It wasn’t just about technology. The scandal gained drama because of the human theatre around it — the bizarre elevation of an untested outsider to a multi-crore role, a chief executive consulting a mysterious “spiritual guide,” academics who shaped policy while profiting from private consultancy, and brokers who somehow always logged in first.
To critics, this was no accident. It was a conspiracy sustained by auditors who issued clean reports, regulators who looked away, bureaucrats suspected of leaking documents, and investigators who reduced systemic crime to a soap opera subplot.
The ordinary investor, meanwhile, was forgotten. Teachers, shopkeepers, retirees traded in good faith, but their orders were always a step behind. The drain was invisible in each transaction but huge in the aggregate. For them, this was not just a technical issue; it was betrayal.
The Case for Scare: A Story Inflated
And yet, there is another way of looking at the same chain of events. Co-location, after all, was not illegal. It was practiced in every major exchange from New York to Singapore. Paying for speed was part of the modern market. If some firms reaped advantages, it was because they invested in proximity, not because they rewrote the rules.
Yes, the Indian version was flawed. But flaws do not equal fraud. The leap from “technical imperfection” to “grand conspiracy” was a leap the media made eagerly. What was a structural misstep became a morality play.
The most lurid subplot — a chief executive guided by a Himalayan mystic — provided perfect fodder for primetime. But in reality, this sideshow had little to do with how trades were matched or prices formed. It was gossip, not governance.
And what about the claim that millions of retail investors were looted? Evidence is thin. Retail orders are matched in batches at prevailing market prices; they do not live or die by nanoseconds. At worst, a small saver may have lost a few paise per trade. Hardly the stuff of financial ruin. Ironically, the loudest damage to retail confidence may have come from the headlines themselves, which scared households away from equities far more effectively than any server ever could.
From this vantage point, the real scandal was the investigation. Instead of clarifying, investigators fumbled — chasing personalities, allowing evidence to vanish, and closing the case without a coherent explanation. Into that vacuum rushed speculation, rivalries, and vested interests. Competing exchanges, sidelined brokers, even policymakers found it useful to paint the country’s flagship bourse as a villain.
Between Scandal and Scare
Put side by side, the two narratives look irreconcilable. One sees deliberate betrayal, the other unnecessary panic. But perhaps both are partly true.
The system was flawed — unicast architecture and insider leaks undeniably tilted the field. Some players did profit unfairly. Oversight was weak, and audits and regulatory silence enabled it. That much is beyond dispute.
Yet, it is equally true that the story was exaggerated in public imagination. The Himalayan Baba, the billion-dollar headlines, the image of small investors bled dry — these elements gave drama but obscured nuance. The financial impact on retail portfolios was likely modest. The bigger blow came from perception.
In the end, the scandal lay as much in eroded trust as in technical rigging. For investors, it confirmed the suspicion that markets are tilted. For the media, it was the perfect morality tale. For rivals, it was an opportunity. And for investigators, it was a chance squandered.
Reckoning Still Due
So was the co-location affair a scandal or a scare? Both, in different ways. A scandal because the system was skewed and insiders took advantage. A scare because the narrative ballooned into apocalypse, frightening small savers away.
The tragedy is that India had an opportunity to settle the matter with clarity. Regulators could have admitted errors and reformed. Investigators could have built a serious case instead of caricature. Policymakers could have reassured investors. Instead, the story ended with a closure report on one side and screaming headlines on the other.
Between scandal and scare, the reckoning never came. And until it does, India’s temple of finance will remain haunted — whether by ghosts of fraud or by ghosts of fear.
(This is an opinion piece, and views expressed are those of the author only)
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