NSE fined ₹1,000 crore in co-location case

SEBI bars bourse from accessing securities market for 6 months; says actions affected market fairness The Securities and Exchange Board of India (SEBI) has barred the National Stock Exchange (NSE), which has the largest market share in equity segment and almost a monopoly in equity derivatives, from accessing the securities market for six months. The capital markets regulator has further ordered the exchange to disgorge around ₹1,0000000000 — that is, ₹624.890000000 plus 12% interest from April 1, 2014 — for its alleged failure to exercise proper due diligence while offering co-location facility thereby affecting market fairness and integrity. ‘Fraudulent practice’ The watchdog has also taken stern action against the former and current top brass of the exchange with some directed to not hold any position in a stock exchange for a period ranging from two to three years. “... NSE has committed a fraudulent and unfair trade practice as contemplated under the SEBI (PFUTP) Regulations, I find that it is established beyond doubt that NSE has not exercised the requisite due diligence while putting in place the TBT architecture,” stated the 104-page SEBI order. While PFUTP refers to Prohibition of Fraudulent and Unfair Trade Practices rules, TBT is tick-by-tick data feed. Co-location refers to the system wherein a broker’s server is kept in the exchange premises to reduce latency, or delay in computing terms, while executing trades. “The same created a trading environment in which the information dissemination was asymmetric, which cannot be considered fair and equitable. This failure of NSE to ensure equal and fair access, in the facts and circumstances as detailed and discussed in above paragraphs, has resulted in violation...” added the SEBI order. The roots of the matter go back to 2015 when SEBI received complaints against NSE where, among other things, it was alleged that the system that NSE used while disseminating data through co-location facilities allowed certain users to get information before others, thereby creating an information asymmetry. The regulator has ordered Ravi Narain and Chitra Ramkrishna — both former MD and CEOs of NSE — to disgorge a part of their salary drawn when they were at the helm of affairs at the exchange, which has the largest market share in equity segment and almost a monopoly in equity derivatives. While Mr. Narain has been directed to disgorge 25% of his salary drawn from FY11 to FY13, Ms. Ramkrishna is to disgorge a similar share of her salary drawn in 2013-14. Both have also been barred from being associated with any listed firm or a Market Infrastructure Institution — bourses, clearing corporations, depositories — for five years. Other officials who have been issued restraining orders include Ravi Varanasi, head, business development; Nagendra Kumar, head, membership department; Deviprasad Singh, head, colo support; Suprabhat Lala, A-VP; and Umesh Jain, CTO. SEBI has also barred OPG Securities, allegedly the prime beneficiary of the co-location matter, and its directors from accessing the securities market for five years, while directing the entities to disgorge nearly ₹250000000. Ajay Shah of Indira Gandhi Institute of Development Research has also been restrained from holding any position with a stock exchange or a listed company for two years. “NSE is... examining [the] SEBI order and will take appropriate steps as may be legally advised,” an NSE spokesperson said.