NSE Co-location Case: SAT To Pay Rs. 625 Crore Disgorgement Order Aside, The Bourse In IBEF Had Rs. Directed To Deposit 100 Crores
January 2023: The Securities Appellate Tribunal (SAT) in the co-location case against the National Stock Exchange (NSE) for Rs. 625 crore ($85 million) disgorgement order has been cancelled.
The order was issued by the Securities and Exchange Board of India (SEBI) following complaints that a broker had used NSE staff to gain server access and financial gain.
Co-location refers to traders being able to place servers in close proximity to an exchange, thus giving traders a time advantage that translates into bigger profits.
In its judgement, the SAT said that the winding-up direction should be in relation to any transaction or activity which contravenes the provisions of the SEBI Act or its rules. Dismissal orders can be made when he is found to be involved in illegal acts, and it is not necessary to pass a dismissal notice in every case because some provisions of the law have not been complied with.
The Tribunal also noted that the direction for dissolution was unreasonable, but the appellant NSE cannot be allowed to go scot-free and must pay the price for lack of due diligence due to human failure to comply with the circular. .
However, NSE has been directed to deposit INR 100 crore in the Investor Protection and Education Fund created by SEBI.
The tribunal also approved SEBI’s directions prohibiting NSE from directly or indirectly entering the securities market for a period of six months.
It has also directed the bourse to conduct system audits from time to time after thoroughly evaluating the technical changes introduced from time to time.
In 2015, SEBI received complaints that trading member OPG Securities used NSE’s system to its advantage by colluding with NSE staff-members.
The first person to connect to the lowest load server will have an advantage in terms of receiving data faster than others.
In 2019, SEBI passed a series of orders against the NSE and its former chief executives, Chitra Ramakrishna and Ravi Narayan, in the co-location case.
The tribunal set aside SEBI’s direction to disgorge 25% of the salaries of Naren and Ramakrishna, saying it was clearly erroneous.
The tribunal also set aside SEBI’s direction barring Narayan and Ramakrishna from having any association with any listed company or market infrastructure organization or any other market intermediary for five years.
It has confirmed the violations committed by OPG as found by SEBI. However, SEBI charged OPG and its directors Rs. 15.57 crores was directed to be given concession.
SAT has referred the matter back to SEBI to determine the quantum of distortion afresh in the light of observations made within four months.
It also directed the whole time member of SEBI to look into the allegation of connivance and connivance of OPG and its directors with any official of NSE.
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