SEBI Whole Time Member Kamlesh C Varshney passed the order after it found insufficient evidence to substantiate the allegations of collusion and misconduct against NSE and its top brass.
The Securities and Exchange Board of India (SEBI) has dropped proceedings against former Chief Executive Officer (CEO) of the National Stock Exchange (NSE) Chitra Ramkrishna, former Vice Chairman Ravi Narain, former Group Operating Officer Anand Subramanian and four other former senior NSE executives in the co-location scam [Order in the matter of NSE and Others (Co-location)].
SEBI Whole Time Member Kamlesh C Varshney passed the order after it found insufficient evidence to substantiate the allegations of collusion and misconduct against NSE and its top brass.
SEBI in its order emphasised that “there are no new evidences in the current proceeding” beyond a 2023 report from the Indian School of Business (ISB).
It found that the available evidence did not meet the ‘preponderance of probability’ standard required to prove collusion or connivance between OPG Securities (OPG) and NSE officials.
“Due to the absence of sufficient material/evidence/objective facts on record in this case, the test of ‘preponderance of probability’ fails to produce enough justification for establishment of collusion/connivance between OPG and its directors with Noticees,” the Court said.
This decision was rendered following a January 2023 ruling by the Securities Appellate Tribunal (SAT) which had overturned SEBI’s April 2019 order directing NSE to disgorge ₹625 crore.
The co-location facility, introduced by NSE in 2009, allowed brokers to place their servers within NSE’s data centers for a fee, providing them with access to market data a fraction of a second before other participants.
The controversy surfaced in 2015 when whistleblowers alerted SEBI to preferential access issues. The SEBI committee found that NSE’s data dissemination architecture was vulnerable to manipulation and market abuse, leading to investigations of 15 stockbrokers including OPG Securities.
In 2019, SEBI directed NSE to disgorge ₹624.89 crore and imposed a six-month ban on accessing market. However, following NSE’s appeal, SAT reduced the disgorgement amount to ₹100 crore.
SEBI had also directed OPG Securities to disgorge ₹15.75 crore with interest, but this directive was later set aside and the matter was remanded back to SEBI for reassessment.
The SAT also instructed SEBI to re-evaluate the case within four months, focusing on recalculating the disgorgement amount, reassessing allegations of collusion, investigating claims of crowding out other market participants and determining penalties for any concealment or destruction of evidence.
SEBI’s mandate mainly included examining whether OPG and its directors had gained an unfair advantage through secondary server access or by crowding out other traders.
SAT had previously ruled that simply logging into the primary server first did not confer an unfair advantage, thereby narrowing SEBI’s investigation scope.
Subsequent to the SAT order, the market regulator issued fresh notices against NSE and others in May 2023. Throughout the proceedings, SEBI provided the noticees with access to documents and opportunities for cross-examination.
Despite these opportunities, it found no substantive evidence against NSE or its former executives. The exchange defended its co-location practices by explaining that the secondary server was intended solely as a backup in case of primary server failure and that any misuse was addressed through disciplinary actions against errant traders including those from OPG.
Source: https://www.barandbench.com/news/co-location-scam-sebi-drops-charges-against-nse-chitra-ramkrishna