Sebi bars NSE from accessing securities market for 6 months in co-location case

NEW DELHI/MUMBAI: Markets regulator the Securities and Exchange Board of India (Sebi) has barred leading stock exchange NSE from accessing the securities market for a period of six months in the much-awaited order on the co-location case.

The exchange will not able to come out with its IPO during this period.

“NSE has committed a fraudulent and unfair trade practice as contemplated under the SEBI (PFUTP) Regulations. It is established beyond doubt that NSE has not exercised the requisite due diligence while putting in place the TBT architecture," G Mahalingam, whole-time member of Sebi said in the order.

Tick-by-Tick (TBT) is a data feed, which provides information regarding every change in the order book on the NSE.

The regulator has also asked the exchange to disgorge an amount of Rs 624.89 crore along with an interest of 12 per cent per annum to the Sebi’s Investor Protection and Education Fund (IPEF).

Sebi estimated that NSE earned a profit of Rs 624.89 crore during 2010-11 to 2013-14 from its co-location operation.

Responding to the Sebi order, a spokesperson for NSE said, "NSE is in the process of examining SEBI Order passed today and will take appropriate steps as may be legally advised."

The exchange has also been directed to audit its systems at frequent intervals. NSE now also cannot introduce any new derivative product in stocks or commodities for the next six months.

Sebi has also issued orders against 16 individuals, including former managing directors and CEOs Ravi Narain and Chitra Ramkrishna.

Narain and Ramkrishna have been ordered to disgorge 25 per cent of their salary drawn for FY11 to FY13 and 25 per cent of the salary drawn for FY14, respectively, to the IPEF, within the next 45 days.

Both these former officials have been prohibited from associating with a listed company or a market infrastructure institution or any other market intermediary for five years.

The co-location case dates back to 2015, when a whistleblower wrote a letter to Sebi alleging that the NSE gave preferential access to a few high-frequency traders and brokers to the exchange's trading platform.

The whistleblower had alleged that some people had figured out that the way to game the system by becoming the first one to connect to the server and preferably a server, which was the fastest.

Experts were of the view that the order was fair.

“I think the order is fair. The integrity of capital markets is important,” said Shriram Subramanian, founder of InGovern, a proxy advisory firm.

Subramanian said the order meant that NSE will not be able to invest in securities market or come up with an IPO over the next six months.

“There would have been digital footprints. This was long expected. The only thing is that Sebi might have figured out that it happened with the knowledge of former MDs,” he added.

Sebi in its order on Tuesday also asked NSE to initiate an enquiry under its employees regulations against Mahesh Soparkar and submit a report to the regulator within six months.