In today’s Finshots we take a look at why SEBI fined BSE and what that tells us about how information moves money in markets.

The Story

Most of us would think the Bombay Stock Exchange (BSE) is too old to get into trouble. After all, this is the same 150-year-old institution that houses the iconic Phiroze Jeejeebhoy Towers, hosts the bronze bull sculpture at Dalal Street, and became the first stock exchange to get listed in India.

But a few days back, the Securities and Exchange Board of India (SEBI) slapped a ₹25 lakh penalty on BSE for something pretty damning: giving early access to sensitive company announcements to a select few, and turning a blind eye to broker malpractice.

And if that sounds vaguely familiar, it's because we’ve heard this song before. Back in 2015, the National Stock Exchange (NSE) was caught in a much bigger mess (the infamous co-location scam) where select high-frequency traders allegedly got access to market data before others. It became one of India’s largest stock market scandals.

So when SEBI discovered something similar, even if smaller in scale, they didn’t want history to rhyme. Hence, the order.

Let’s take it from the top.

Between February 2021 and September 2022, SEBI did an inspection of BSE’s systems, particularly its Listing Centre, where companies file all their market-moving announcements. Think quarterly results, bonus issues, board meeting resolutions, dividend declarations — the kind of stuff that can send stock prices moving in seconds. The Listing Centre or so called Corporate Announcement Filing System (CAFS) is meant to be the bridge between companies and the public, a neutral upload zone where everything hits the market at once for all to see.

But here’s the problem: before it reached everyone, it may have reached some.

SEBI allegedly found that BSE’s Listing Compliance Monitoring (LCM) and a set of clients potentially had access to this data early. These clients were paid subscribers who accessed corporate announcements through leased lines and APIs (Application Programming Interface) — a premium data feed that may have delivered information seconds before it was made public on the BSE’s website.

And in a world of high-frequency trading, a few seconds aren’t trivial. Even two seconds of lead time can mean placing a trade before the market absorbs the news. That’s not insight but an edge. And it’s unfair. The order further clarified that corporate announcements yet to be published officially by the exchange fall under "unpublished price-sensitive information" (UPSI), inherently posing a risk of misuse even if direct evidence of exploitation was not conclusively established.

Worse still, SEBI noted that BSE didn’t use a uniform push mechanism like an RSS (Really Simple Syndication) feed (a digital broadcast pipe that sends out the same information to everyone simultaneously the moment it’s published). Instead, BSE relied on a pull model, where different users retrieved the data from the server manually or via APIs. Which means people with faster access, better software, or inside connections could simply pull it sooner.

And this is exactly what creates a tiered information ecosystem where some pay for speed, and others lag behind. And when the system is designed this way by the exchange itself, the implications are serious. Because the exchange is meant to be neutral, it’s not supposed to be a gatekeeper or toll booth for public information.

Now, BSE did admit that this gap existed. But it claimed it had no material impact on investors. SEBI, however, didn’t buy it. They said the lapses reflected “a lethargic approach,” that corrections only came after the inspection, and that such failures, if allowed to continue, “will be a serious setback to the image and the prestige of the BSE and SEBI both.”

And the disclosures weren’t the only problem.

SEBI also flagged another troubling trend about how BSE handled client code modifications by brokers. To simplify: every trade on the stock exchange is linked to a unique client code. If a broker enters the wrong one — say, mistypes a client ID — there’s a provision to fix that later. But it’s only meant for genuine errors. But what SEBI found was routine misuse. Brokers were shifting trades between unrelated institutional clients or error accounts without proper oversight. And BSE wasn’t doing enough to review or flag these frequent modifications. That kind of blind spot opens the door to all sorts of bad behaviour from tax evasion, profit dressing, or manipulating trade records.

This comes at a time when Indian capital markets are trying to build more trust — both for global investors who are pouring money into India and for retail investors who now form over 60% of ownership in the free float market. When stock exchanges, which are supposed to be neutral infrastructure providers, start giving even a sliver of unfair access, it threatens to dent that trust.

And India only has two major full-service stock exchanges — NSE and BSE. NSE already dominates with over 90% share in the equities market. That makes BSE’s role as a counterbalance even more important. BSE’s website, on an average, experiences about 8.95 million page views and 0.26 million users daily. If even that isn’t run flawlessly, it doesn’t just damage credibility; it limits choice.

Now, you might be thinking, okay, fine, this seems like a back-end manipulation. What does this have to do with me?

Well, here’s the thing. In capital markets, information is everything. Big money is made not just by what you know, but when you know it. And if select players get early access to key information it can tilt the odds heavily in their favour. That’s how hedge funds run event-driven strategies. That’s how prop desks jump ahead of earnings. And that’s how retail investors, more often than not, get left behind.

So what do you do about it?

Well, you fight asymmetric information with long-term conviction. That means buying companies you understand, that compound earnings year after year. Not ones you have to out-game someone else to profit from.

Looking beyond the headlines helps too. Like block and bulk deals, where large investors quietly make their moves. Like changes in promoter pledges or auditor resignations, often buried in footnotes. Or insider buying patterns. Or yes, even inconsistencies in corporate filings that might hint at deeper shifts before the market fully reacts. That’s all public information and it often gives you a hint of how things might be moving at the company level.

Because if you can’t compete on speed, you have to win on depth, and that's easier said than done.

And that’s why SEBI’s action against BSE matters.

Sure, ₹25 lakh isn’t a huge penalty for a company that made ₹1,322 crores in net profit last year. But this isn’t about the fine. It’s about the message. That in the race to monetise data, exchanges can’t forget their core duty of levelling the playing field.

Until then…

Don’t forget to share this story on WhatsApp, LinkedIn and X.

The #1 Financial Mistake Most Indians Make

Delaying buying a term insurance plan.

There could be many reasons for this, but for a lot of people, it’s simply because they’re unsure or just haven’t had the right guidance.

The truth is, term insurance is one of the simplest and most affordable ways to protect your family financially if something were to happen to you. If you’re unsure where to begin, Ditto can help. Book a FREE consultation with an advisor who’ll walk you through it.