The Securities and Exchange Board of India (Sebi) dropped charges against the National Stock Exchange (NSE), and its former top executives Chitra Ramkrishna, Ravi Narain, Anand Subramanian, and four others in the co-location matter. The market regulator said that while there were certain lapses at NSE’s co-location facility, there was no evidence to establish any “collusion” or “connivance” with stockbroker OPG Securities, which had gained “unfair” access to the exchange’s secondary server.
Sebi’s latest order comes following directions issued by the Securities Appellate Tribunal (SAT) last year. While quashing Sebi’s April 2019 order in the matter, the tribunal had directed the market regulator to re-adjudicate the issue within a period of four months. Sebi had later got the deadline extended. SAT had asked Sebi to reconsider the quantum of disgorgement and the charge of connivance.
The regulator’s latest order potentially brings the curtain down on one of the most hotly discussed cases in the capital market ecosystem, which had maligned the image of the former bosses of the country’s top bourse and held up its plans to go public.
“It is held that due to the absence of sufficient material/evidence/objective facts on record in this case, the test of ‘preponderance of probability’ fails to produce enough justification for establishment of collusion/connivance between OPG and its directors with Noticees,” Kamlesh Varshney, whole-time member, Sebi, said in an 83-page order.
In a separate 238-page order in the same matter, the regulator directed OPG Securities to disgorge Rs 85 crore. Further, Sebi has imposed a six-month ban on OPG, which will be in addition to the debarment of five years that the regulator had directed in the April 2019 order.
Sebi’s recomputed disgorgement amount is higher than the Rs 15.57 crore that Sebi had directed the brokerage to disgorge in its 2019 order. The regulator held that the brokerage obtained unfair advantage by getting access to the exchange’s secondary servers.
While the regulator has noted that NSE did not have a defined policy for the use of the co-location facility and failed to monitor the usage of the secondary server, there is no evidence of collusion with OPG.
Between June 2010 and March 2014, NSE had deployed so-called tick-by-tick (TBT) architecture at its co-location facility. TBT disseminated data feed sequentially, giving preference to trading members (TM) that had connected first to the co-location server. Taking advantage of the system, OPG Securities frequently obtained first access to the exchange system. The issue was brought to light by a whistleblower named Ken Fong, who sent three complaint letters to Sebi in January, August, and October of 2015, following which the regulator initiated multiple probes and forensic audits into the matter.
NSE’s co-location facility, launched in 2009, allows traders and brokers to establish their IT servers within the premises of the bourse’s data centres in return for a fee. These participants can access stock prices’ information faster, resulting in faster trade execution.
In January 2023, the Securities Appellate Tribunal (SAT) had set aside Sebi’s April 2019 order, which had directed the exchange to disgorge Rs 625 crore along with an interest of 12 per cent per annum since 2014.
The tribunal had, however, directed NSE to deposit Rs 100 crore for lack of due diligence. As per an earlier filing by NSE, Sebi had refunded Rs 300 crore to the exchange following directions by the Supreme Court in a related matter.
First Published: Sep 13 2024 | 8:31 PM IST
