When Seconds Matter: How BSE’s Data Lapses Shook Market Trust

[Sahil is a student at Maharashtra National Law University Mumbai.]

The Bombay Stock Exchange (BSE) has long been a testament to Indian financial solidity, its Phiroze Jeejeebhoy Towers and Dalal Street bronze bull statue representing a legacy dating almost 150 years. However, even venerable institutions are not exempt from regulatory failings, as indicated by the recent INR 25,00,000 fine levied on BSE by the Securities and Exchange Board of India (SEBI) for egregious violations of information dissemination and surveillance.

The fine was not about a minor technical matter or a mere mistake. It was about something greater: the notion that in today's super-accelerated markets, even a few seconds of premature access to key disclosures can be a game-changer. In an era where algorithms and high-speed traders can make milliseconds translate into millions, this wasn't merely a technicality. It was a trust breach, a regulatory violation, and a call to action for all who have faith in the integrity of Indian markets.

For ordinary investors, this might have been back-end mumbo-jumbo. But at its core, the BSE saga is all about something every market player wants: a level playing field. When some get a head start, regardless of how infinitesimal the rest are left scrambling to catch up. And as India's markets draw in more retail investors and foreign attention than ever, the requirement for sheer transparency and fairness has never been more pressing. SEBI’s action is a reminder that trust, once shaken, is hard to rebuild and that even the oldest institutions must constantly earn their place in the sun.

What Went Wrong at BSE?

SEBI made a thorough inspection of BSE's Listing Centre from February 2021 to September 2022, the platform to which companies list their key market-moving announcements quarterly results, board resolutions, dividends, and so on. These announcements are supposed to go out to the market at the same time, providing a level playing field for everybody in the market. But SEBI discovered that a chosen few paid subscribers, who accessed information through leased lines and APIs, got these alerts seconds ahead of the publication on the BSE website.

In the cutthroat environment of high-frequency trading, where a two second lead is all that may be needed to reap enormous profits, such early-access notices were designated by SEBI as unpublished price sensitive information, underlining the risk of abuse inherent in them, even in the absence of proof indelibly linking them to exploitation. 

The Mechanism: Pull v/s Push

A central technical failure was BSE's use of a "pull" model for information dissemination. Instead of having a single "push" system like an really simple syndication feed that pushes changes to all at once, BSE permitted data to be pulled manually or through application programming interface. This had the effect of making individuals with faster connections or better software able to get information ahead of others, producing a stratified information environment in which speed could be purchased.

The difference between two systems can be better understood by following table: 

Model	How it Works	Example	Fairness Impact
Pull	Users request data from the server themselves	API, manual	Can create time gaps; some get info earlier
Push	Server broadcasts data to all at once	RSS feed, alerts	Everyone gets info simultaneously

Regulatory Environment: An Eyewatering Episode from the NSE Co-location Scam

The BSE episode is reminiscent of the high-profile National Stock Exchange (NSE) co-location scam in 2015, when certain high-frequency players obtained improper benefits through privileged access to market feed through co-location facilities and dark fiber links. The scandal led to SEBI levying heavy fines on the NSE, prohibiting top executives from market operations, and directing disgorgement of the ill-gotten gains. The regulatory message was clear: exchanges must act as neutral infrastructure providers, not as gatekeepers or toll collectors for privileged information.

Among various regulations which SEBI found BSE violative of, some key violations being as follows. 

1. Regulation 39(3) of the Securities Contracts (Regulation) (Stock Exchange and Clearing Corporations) Regulations 2018, which mandates recognized stock exchanges to be fair and equal to all participants;

2. SEBI circular bearing number SEBI/HO/DEPAIII/DEPA-IIISSU/P/CIR/2022/25 dated 25 February 2022;

3. Regulation 3 of the SEBI (Prohibition of Insider Trading) Regulations 2015;

4. SEBI master circular bearing number SEBI/HO/MRD2/MRD2DCAP/P/CIR/2021/0000000591 dated 5 July 2021; and

5. SEBI circular bearing CIR/DNPD/6/2011 dated 5 July 2011. 

SEBI’s order against BSE cited a “lethargic approach” in addressing these lapses, noting that corrective actions were only implemented after regulatory inspection, and warning that such failures could undermine the credibility of both BSE and SEBI.

Beyond Disclosure: Broker Oversight Failures

SEBI’s inspection also uncovered widespread misuse of client code modifications by brokers on the BSE. While correcting genuine errors in client codes is permitted, SEBI found that brokers were routinely shifting trades between unrelated clients or error accounts, with BSE failing to adequately monitor or flag these modifications. Such gaps open the door to tax evasion, profit manipulation, and other forms of market abuse.

Why This Matters for Investors

For institutional and retail investors both, faith in the integrity of capital markets is critical. When exchanges permit even a fragment of unfair access, it disconcerts confidence, especially at a moment when retail involvement in India's markets is the highest ever and worldwide investors are closely observing. With NSE already dominating more than 90% of the equities market, BSE's function as a trustworthy counterweight is greater than ever before.

What Must Be Changed?

In order to revitalize and protect market integrity, various actions are necessary. Embracing uniform push-based disclosure has become important, exchanges must adopt real-time, simultaneous release of all corporate releases through strong push mechanisms (like RSS feeds or webhooks), so that no participant has access before others.

Exchanges must update themselves with advent technologies like strengthen surveillance and audit trails automated monitoring systems. This system alert for anomalous patterns of data access and client code changes, with periodic audits to catch and prevent abuse. This change in technologies can reduce the probability of mishappening. Exchanges need to impose stricter control and real-time surveillance of client code changes, with obligatory reporting and explanation for every modification.

Improving transparency in data services is another aspect which exchanges must strictly undertake. Any premium data services provided by exchanges need to be designed so that they do not create information asymmetry, with clear disclosure of what is being offered, to whom, and when. Regulators and exchanges need to invest in investor education on the dangers of information asymmetry and the value of long-term, fundamentals-based investing versus event-driven speculation. 

A Warning Beyond the Fine

Though the INR 25,00,000 fine might look insignificant against the annual revenues of BSE, the true meaning is in the regulatory warning: Exchanges are meant to equalize the playing field, not to profit from exclusive access. In a market ruled by data, fairness is not only about what data is disseminated, but also when and how it is disseminated.

For the investors, the message is clear: you cannot necessarily compete on speed, but you can compete on depth by paying attention to fundamentals, checking public filings, and being sensitive to nuanced changes in company disclosures. As India's capital markets develop, it is the responsibility of both regulators and market players to maintain the faith that is the bedrock of every transaction.