Sebi disposes of proceedings against NSE, Ravi Narain, Chitra Ramkrishna, others in co-location probe

The order noted a lack of diligence in NSE's part.

The market regulator has disposed of its proceedings against the National Stock Exchange (NSE), Ravi Narain, Chitra Ramkrishna, Anand Subramanian, and others concerning the exchange's co-location services.

Narain is the former MD and CEO of NSE from 2000 to March 2013; Ramkrishna, the former MD and CEO of NSE from April 2013 to December 2016; and Subramanian, the former Chief Strategic Officer from April 2013 to March 2014. The order essentially closes the proceedings against the exchange and the officials.

The proceedings were initiated following an order issued by the Securities and Appellate Tribunal (SAT), after hearing appeals by the exchange, its employees, broker OPG Securities and others.

Considering various facts and observations, the Sebi order released on September 13 stated, "it does become a strong possibility that there is no connivance/ collusion on the part of the Noticees (the exchange and others) with OPG and its Directors and that the charge of collusion/ connivance/fraud made out in the 2023 SCN (showcause notice issued by Sebi) lacks justification."

It further stated, "There is no dispute to the fact that NSE did not have a detailed defined policy for the use of Colo (co-location) facility. It even failed to monitor the use of the secondary server by TMs without having sufficient reason. The defence put forward by NSE about the issuance of welcome email in the form of ‘registration enablement mail’ at the time of providing Colo facility to TMs, can’t be said to be justifying its role as a first-level regulator."

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The order further noted, "The issuance of guidelines without proper monitoring demonstrated a lack of due diligence... However, this fact on its own does not help in deciding the issue of collusion/connivance of OPG and its directors with Noticees (NSE and others)."

NSE has refused to comment on this story.

The regulator considered in detail if there was collusion between the exchange, its officials and OPG Securities and its directors.

It said, "Though, one can argue that if there is secret understanding it would not be documented, so as to be caught during audit exercise or other examination. Further, it can be argued that if there is monetary exchange it would not be through banking channels. To that extent all the studies/reports cited above have limitations." The regulator had relied on reports submitted by external consultants such as Deloitte, EY and ISB to look into the possibility of collusion or connivance between the exchange, its officials and the brokerage and its officials.

The Sebi order added, "Nevertheless, if there is secret understanding or conversation or money exchange for a long period of time (as it could be a possibility based on allegation in the case here) it would get reflected in some documented communication directly or indirectly at some point of time. When so many external experts have examined email dumps, communication, records for a reasonably long period of time and still have not found a single piece which could directly or indirectly suggest collusion/connivance, an ordinary man would infer that the probability of collusion/connivance is quite less."

In a separate order issued on September 13, Sebi asked OPG Securities and Sanjay Gupta, Sangeeta Gupta, Om Prakash Gupta to disgorge Rs 85.25 crore jointly and severally, along with an interest of 12 percent per annum calculated from May 22, 2015, till the date of payment. Sanjay Gupta has also been prohibited from accessing the securities market for six months, in addition to the debarment of five years as directed by an earlier 2019 Sebi order.