CBI FIR in co-location case weakens NSE IPO prospects, dims consent plea hopes

The National Stock Exchange’s public offer may not get SEBI go-ahead until the CBI concludes its investigation in the co-location server case. The development comes as the agency has named NSE and SEBI officials in an FIR in the case.

“The markets regulator may not be able to take a call on NSE IPO due to the ongoing CBI investigation,” a source close to the development told Moneycontrol, adding that the even SEBI’s probe in the case may take longer to conclude. The investigation will likely weaken the case for SEBI to  grant consent if NSE makes a fresh application. The regulator had returned the exchange’s consent plea in March.

The development also creates a roadblock for NSE to file a consent plea since both NSE and SEBI officials have been named in the CBI FIR which alleges preferential access to broking firm OPG Securities.

The CBI FIR also mentions one Ajay Shah who allegedly collected NSE trade data and facilitated OPG Securities owner Sanjay Gupta by developing and providing algo software Chanakya which was instrumental in exploiting NSE TBT architecture.

OPG Securities is at the centre of the co-location controversy, in which some brokers who had availed of the server co-location facility, got preferential access to the exchange’s trading system. These brokers had somehow managed to connect to the exchange’s back-up server, and hence could access the price feed faster, giving them an advantage over other brokers.

According to a whistleblower's letter which brought the case to the forefront, Shah and his wife Susan Thomas had got a hefty royalty, a percentage of income from Nifty trades, from NSE annually.

Developments in the case since May 28, when the CBI filed its FIR, will likely impact SEBI’s probe in the case too. “The CBI FIR alleges corruption charges against SEBI officials too. The agency has started questioning the officials now. So, only once the CBI probe ends, the regulator will be able to move forward,” the source said.

Consent Hurdle

NSE has been steadfast in denying any losses to brokers and investors on account of the preferential access some had availed. “The CBI FIR states that brokers and investors incurred losses. Considering the 10x speed advantage to OPG Securities, the losses can be around Rs 50,000 crore as more than a dozen brokers benefited,” another sourced told Moneycontrol. “SEBI will now have to arrive at a loss figure before inviting consent plea from NSE.”