Co-location case: SEBI bars NSE from securities market for 6 mont

30/04/2019

Co-location case: SEBI bars NSE from securities market for 6 months; directs exchange to 'disgorge' Rs 625 cr

Market regulator Securities and Exchange Board of India (SEBI) on April 30 directed the National Stock Exchange to 'disgorge' Rs 625 crore with 12 percent per annum interest in the co-location case.

Accounting for the interest, the disgorgement amount totals roughly over Rs 1,000 crore.

The regulator has also barred the exchange from the securities market for six months. This means the NSE cannot access the capital market in terms of IPO for six months.

NSE did not exercise due diligence while putting in place TBT (Tick-by-Tick) architecture, SEBI said in its order.

The disgorgement amount has to be deposited in the Investor Protection and Education Fund (IPEF).

The regulator has also found the two former managing directors of NSE guilty in the case.

NSE's former MD and CEO Ravi Narain has been directed to disgorge 25 percent of his salary drawn for FY 2010-11 to 2012-13 to the IPEF within 45 days. The other former MD Chitra Ramkrishna has also been asked to disgorge 25 percent of the salary drawn for FY 2013-14, to the IPEF within the same period.

The SEBI order does not specify if the 25 percent is to be calculated on gross or net pay for the period. However, the amount works out to anywhere between Rs 3 to 6 crore for Narain while for Ramkrishna it comes to about Rs 50 lakh to a little over Rs 1 crore if calculated separately on gross and net basis.

Narain had started off at NSE in the year 2000. After he retired in March 2013 Ramkrishna took over as the CEO for nearly three years until she stepped down in December 2016.

Both Narain and Ramkrishna have been prohibited from associating with a listed company or a market Infrastructure Institution or any other market intermediary for a period of five years.

In its order, the SEBI directed on the following three things

- NSE shall disgorge an amount of Rs.624.89 crore, with interest calculated at the rate of 12 percent per annum from April 01, 2014 onwards to the IPEF created by SEBI under Section 11 of the SEBI Act, within 45 days from the date of this order;

- NSE shall be prohibited from accessing the securities market directly

or indirectly for a period of six (6) months from the date of this order; and

- The exchange shall carry out System Audit at frequent intervals, after through appraisal of the technological changes introduced from time to time; reconstitute its Standing Committee on Technology at regular intervals to take stock of technological issues, and frame a clear policy on administering whistleblower complaints.

SEBI had initiated enforcement action against various entities in the NSE co-location case on June 21 following allegations that the exchange had given some traders preferential access to its facility.

The accused in the case are being probed for rigging the system in order to provide preferential access to some brokers by giving them access to the backup servers in the co-location facility as well.

With the illegal speed advantage, the brokers under suspicion allegedly carried out high-frequency trades for four years between 2010 and 2014, enriching themselves and their clients to the tune of thousands of crores.