The Securities and Exchange Board of India (Sebi) on Friday dropped charges against the National Stock Exchange (NSE) and its seven former executives, including Chitra Ramkrishna, Ravi Narain and Anand Subramanian, in the colocation case, citing an absence of evidence to support the allegations.
The market regulator said while there were certain lapses at the NSE’s colocation (colo) facility, there was no evidence to establish any “collusion” or “connivance” with stock broker OPG Securities, who had gained “unfair” access to the exchange’s secondary server.
“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 the establishment of collusion/connivance between OPG and its directors with Noticees,” Kamlesh Varshney, whole-time member, Sebi said in an 83-page order.
The order comes after the Securities Appellate Tribunal (SAT) issued directions 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 four months.
The deadline was later extended. SAT had asked Sebi to reconsider the quantum of disgorgement and the charge of connivance.
The regulator’s latest order potentially brings curtains 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.
Apart from the NSE, Ramkrishna, Narain, and Subramanian, Sebi dropped charges against Ravindra Apte, Umesh Jain, Mahesh Soparkar and Deviprasad Singh.
In a separate 238-page order in the same matter, the regulator directed OPG Securities to disgorge Rs 85 crore. Sebi has also imposed a six-month ban on OPG, which will be in addition to the debarment of five years that the regulator 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 an unfair advantage by getting access to the exchange’s
secondary servers.
While the regulator acknowledged that the NSE did not have a defined policy for the use of the colo facility and failed to monitor the usage of the secondary server, it said there is no evidence to support the claim of collusion with OPG.
Between June 2010 and March 2014, the NSE deployed so-called tick-by-tick (TBT) architecture at its colo facility. TBT disseminated data feed sequentially, giving preference to trading members (TM) that had connected first to the colo 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 colo 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 the stock prices’ information faster, resulting in quicker trade execution.
In January 2023, SAT 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 annum since 2014.
The tribunal had, however, directed the NSE to deposit Rs 100 crore for lack of due diligence. According to an earlier filing by the NSE, Sebi had refunded Rs 300 crore to the exchange, following directions from the Supreme Court in a related matter.
Case file
2009: NSE launches colocation facility
2015: Sebi receives whistleblower complaint against NSE alleging irregularities in granting preferential market access
to select brokers
2016: Amid pending investigation, Sebi directs NSE to transfer revenue from colocation in separate account
April 2019: Sebi issues disgorgement order against NSE, ex-chiefs Chitra Ramkrishna and Ravi Narain
May 2019: NSE appeals in SAT against Sebi order
March 2022: CBI arrests Chitra Ramkrishna in colocation case, she gets bail later in the year
January 2023: SAT sets aside disgorgement order; directs Sebi re-adjudicate the issue
September 2024: Sebi disposes of proceedings against NSE, former top officials in colocation matter
