NSE's Settlement Plea in Co-location Case Rejected by SEBI: Report

Moneylife Digital Team 14 February 2024

The Securities and Exchange Board of India (SEBI) has rejected a settlement application filed by the National Stock Exchange (NSE) in the NSE co-location (Colo) case, says a report from Moneycontrol quoting two people with direct knowledge of the matter.

Sources told the portal that NSE had sought to settle, under SEBI's consent mechanism, allowing resolution without admitting guilt; however, SEBI rejected the plea and will issue a regulatory order instead.

The case is related to the alleged connivance between officials of NSE and OPG Securities Pvt Ltd, one of the brokers accused of getting preferential access to the Exchange's servers, thereby providing it an undue advantage over other traders.

Quoting the sources, the report says, "Securities Appellate Tribunal (SAT) observed that SEBI's 2019 order did not have sufficient evidence to link employees of NSE and OPG Securities. SEBI, however, is taking a view that there is enough evidence to link both. Last week, SEBI provided a chance of a personal hearing to NSE in the matter and is expected to pass an order in the matter soon."

In May 2019, SEBI barred OPG Securities and its directors, Sanjay Gupta, Sangeeta Gupta and Om Prakash Gupta, from the markets for five years for securing unfair access to NSE's trading systems. They were also asked to pay Rs15.57 crore along with an interest of 12% from April 2014 onwards. (Read: SEBI Allows OPG Securities, Way2Wealth and GKN Securities to Close Positions in F&O & Currency Derivatives in Two Months)

Last year in January, SAT set aside some of the orders issued by SEBI against NSE in the NSE colocation scam of 2015. "In our opinion, considering the gravity of the alleged charges, SEBI should have itself conducted an investigation or enquiry instead of delegating it to NSE to conduct an investigation. It is strange, and it does not stand to reason as to how SEBI directed NSE to conduct an investigation against itself. It is clear that a casual approach was adopted," the tribunal had said. (Read: NSE Colo Scam: SAT Sets Aside Disgorgement Orders against NSE, Ravi Narain & Chitra Ramakrishna)

The SAT bench of justice Tarun Agarwala (presiding officer) and justice MT Joshi (judicial member) had also expressed surprise over contradictions in the findings arrived at on the same issue in two separate orders issued by SEBI against NSE, Ravi Narain and Chitra Ramakrishna, former managing directors (MDs) of NSE and OPG Securities.

For example, SAT says on the issue of early login, the WTM, in the order against NSE, held that early login by trading member (TM) and OPG created an advantage. "The WTM held that a TM who logs in first would disseminate the data first at the start of the trading day and, therefore, has an advantage over other TMs. On the other hand, the WTM, in OPG matter, held that the early log in by OPG did not make any unfair advantage. This anomaly is one such instance and there are more. It is not worthwhile to cull out all the contradictions but it is suffice to state that the same officer who has passed the orders on the same date cannot make different analysis on the same subject or issue."

SAT also stayed the order passed by SEBI while asking OPG Securities to deposit 50% of the penalty amount as security by 20 May 2019. (Read: SAT Stays SEBI Orders Against 3 Brokers, 3 NSE Officials)

The colocation or algo scam came to light in mid-2015, when Moneylife wrote about it for the first time, following multiple letters from a whistle-blower. For this, NSE had filed a defamation case against us. A single-judge had penalised NSE for Rs50 lakh for having filed a case against us. After filing an appeal against the order, NSE paid up the penalty. Meanwhile, in the wake of the scam, the top brass of NSE had to resign and a new management team took charge.

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 the NSE algo scam here https://www.moneylife.in/tags/nsealgoscam.html

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