NSE Colo Case: SAT Asks SEBI To Refund Rs72.58 Core to NSE, Way2wealth Brokers & GKN Securities

Moneylife Digital Team 10 August 2023

Investor Interest

While dismissing several orders passed by the Securities and Exchange Board of India (SEBI) in the National Stock Exchange (NSE) colocation matter, the securities appellate tribunal (SAT) has asked the regulator to refund Rs72.58 crore with interest deposited by NSE, Way2wealth Brokers Pvt Ltd and GKN Securities. SAT also dismissed SEBI's prohibitory orders against Chitra Ramkrishna, former managing director and chief executive officer (MD&CEO) of NSE, Ravi Varanasi, Nagendra Kumar and Devi Prasad Singh, all top executives of the Exchange and MR Shashibhushan, Sonali Gupta, Omprakash Gupta and Rahul Gupta.

In an order, the SAT bench of justice Tarun Agarwala (presiding officer) and Meera Swarup (technical member), says, "Since we have set aside the unlawful gains, we direct SEBI to refund a sum of Rs62.58 crore along with interest accrued on it to NSE within four weeks from today. We further vacate the direction given to NSE for depositing the revenues emanating from the colocation facility in an escrow account and the details to be submitted to SEBI from time to time."

SAT also directed SEBI to refund Rs7.5 crore to Way2wealth Brokers and Rs2.5 crore to GKN Securities.

While setting aside directions passed by SEBI's whole-time member (WTM) restraining Ms Ramakrishna, Mr Varanasi, Mr Kumar and Mr Singh from NSE, Shashibhushan, Ms Gupta, Mr OP Gupta and Rahul Gupta from holding any position in any exchange, clearing corporation or depository for two years, the Tribunal allowed the market regulator to impose a penalty, if any.

According to SAT, a portion of the revenue earned by NSE through its colo facility cannot be made part of disgorgement. "Revenue earned by NSE from colo facility is not an unlawful gain and, thus, the direction to disgorge an amount from the revenue earned is wholly erroneous and illegal."

The bench also affirmed directions passed by the WTM restraining Way2wealth Brokers and GKN Securities from accepting, inducting or enrolling any new client for one year and not undertaking any trade in its proprietary account for two years.

Earlier in March, the Supreme Court (SC) declined to stay the order passed by SAT, which had set aside SEBI's order in the NSE Colo case. The apex court also directed SEBI to return Rs300 crore to the NSE from the Rs944 crore it has lying with the regulator.

Earlier in January 2023, SAT had decided to set aside some of the orders issued by SEBI against the NSE in the NSE Colo scam of 2015. In its order, SAT has come down heavily on SEBI's handling of the case.

In compliance with SEBI's 2019 order, the NSE deposited Rs1,044 crore with the regulator. After this, the Tribunal held that the Exchange needs to deposit only Rs100 crore. Now, the SC has directed SEBI to return Rs300 crore to the NSE from the Rs944 crore it has lying with the regulator.

The Colo case dates to 2015 when Moneylife first published a letter by a whistle-blower going by the name Ken Fong in June 2015. The whistle-blower alleged that NSE officials were selectively allowing a few brokers to reap massive profits through preferential access to its colo servers in the form of early log-in or access to servers with low trading loads.

The NSE Colo scam has been documented by Moneylife editors Sucheta Dalal and Debashis Basu in their book Absolute Power: Inside Story of the National Stock Exchange's Amazing Success, Leading to Hubris, Regulatory Capture and Algo Scam, released in June 2021.

Read our coverage on NSE Algo Scam here

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