New Delhi, Jan 23 (PTI) In a relief for NSE, the Securities Appellate Tribunal on Monday set aside Sebi's order that had directed disgorgement of profit worth Rs 625 core in the co-location case but directed the exchange to pay Rs 100 crore to the regulator for the lack of due diligence in the matter.
Sebi, in April 2019, had directed the National Stock Exchange (NSE) to disgorge profits worth more than Rs 687 crore, comprising initial amount of Rs 625 crore, along with 12 percent annual interest in the case.
Also, the regulator had imposed a six-month ban on the bourse on launching new derivative products, barred some present and past executives from the market and initiated strict action against stock brokers. Further, Sebi had directed Ravi Narain and Chitra Ramkrishna -- who had served as MD and CEO of the exchange -- to disgorge 25 per cent of respective salaries drawn during a certain period.
The case relates to alleged lapses in high-frequency trading offered through NSE's co-location facility wherein some entities allegedly got preferential access in high frequency trading.
NSE co-location facility allows stock brokers to take on rent specific racks and co-locate their servers and systems within the exchange premises. The primary objective of co-location services of NSE is to reduce latency for connectivity to the exchange's trading systems for Direct Market Access (DMA), algo trading and Smart Order Routing (SOR).
While setting aside Sebi's disgorgement order, SAT said that NSE did not commit any violation of the SECC Regulations. These pertain to stock exchanges and clearing corporations.
SAT noted that there was a lack of due diligence on the part of NSE while allocating IPs on various ports and that there was inequitable distribution of IPs. Besides, there was failure to monitor frequent connections to the secondary server by certain trading members.
According to the appellate tribunal, NSE has not indulged in any unethical act or has unjustly enriched itself. It has not adhered to its own norms and guidelines and has not followed the circular.
"Direction for disgorgement was unwarranted but the appellant NSE cannot be allowed go scot free and is required to pay a price for the lack of due diligence on account of human failure to comply with the circular in letter and spirit," SAT said in its 232-page order.
Accordingly, the tribunal directed NSE to deposit a sum of Rs 100 crore to the Investor Protection and Education Fund created by the Securities and Exchange Board of India (Sebi).
With regard to NSE former officials, the appellate tribunal set aside Sebi's direction that asked to disgorge 25 per cent of the salary from Narain and Ramkrishna, citing there was no fraud, unfair trade practice or collusion by them with any trading member.
However, SAT said the two officials cannot abdicate their responsibility for the lapses in the monitoring of certain areas.
Further, the direction prohibiting Narain and Ramkrishna from associating with any listed company or a market infrastructure institution for a period of five years has been set aside and substituted for the period undergone by them.
With regard to OPG Securities, SAT has affirmed the violations committed by the brokerage house as found by Sebi. However, it has set aside the direction of Sebi that had asked OPG and its directors to disgorge Rs 15.57 crore along with interest. Moreover, it has asked Sebi to decide the quantum of disgorgement afresh within four months.
Also, it asked Sebi to consider the charge of connivance and collusion of OPG and its directors with any employee/officials of NSE. PTI SP RAM