Indian securities bodies gives relief to NSE in colocation case

• India’s top markets regulator had ordered the NSE to disgorge $12.3 million in illicit gains.
• The SAT overturned that order on Monday.
• The panel set aside a disgorgement of roughly 11 billion rupees.

According to a decision posted on the tribunal’s website, India’s appeals tribunal on Monday overturned a decision made by the markets regulator against the National Stock Exchange (NSE), the nation’s largest stock exchange, in a colocation dispute from 2019.

The panel set aside a disgorgement of roughly 11 billion rupees for illicit gains assessed by the Securities and Exchange Board of India (SEBI) but ordered the NSE to pay a 1-billion-rupee ($12.3 million) penalty for system flaws.

The Securities Appellate Tribunal (SAT) stated in its ruling that “even though (the) NSE has not indulged in any unethical act or has unjustly enriched itself, the direction to disgorge, in our opinion, cannot be sustained.”

“However, the NSE has not adhered to its own norms and guidelines,” it added.

A number of orders were issued by SEBI in 2019 against the NSE and its former chief executives, Chitra Ramkrishna and Ravi Narain, on the grounds that the exchange had not done its due diligence when setting up a network, giving high-frequency traders unfair access to some of the exchange’s network servers.

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The NSE had been prohibited by SEBI from directly or indirectly soliciting capital on the securities market for six months and had to deposit approximately 11 billion rupees, including interest, in an investor fund.

Additionally, it demanded that Narain and Ramkrishna repay 25% of their salary from the pertinent time period.

Additionally, the SAT reduced Ramkrishna and Narain’s exclusion from the capital market to time already served and set aside the disgorgement against them.

Select brokers received privileged access to SEBI’s high-speed algorithmic trading platform and colocation facility after the regulator claimed in its decision that NSE systems were at fault.

The SAT claimed that SEBI did not take the allegations against it seriously enough.

“We must observe that when serious allegations were made against a first-level regulator, namely, NSE, SEBI should have been proactive and should have conducted the investigation seriously,” said the SAT in the order.

“We find that SEBI had adopted a slow approach and, in fact, was placing a protective cover over NSE’s alleged misdeeds.”

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