SEBI imposed a penalty of Rs 50 lakh on the National Stock Exchange for making changes in compensation policy for senior management level people without taking prior approval from the markets regulator.
The change in the policy resulted in encashment of accumulated ordinary leaves for NSE's former managing directors and chief executive officers -- Ravi Narain and Chitra Ramkrishna -- above the limit of 360 days granted by the exchange without taking Sebi's prior nod, an order said.
According to Sebi, this led to non-compliance with the provisions of the SECC or Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations.
"The noticee (National Stock Exchange), being the leading regulated stock exchange in India, should have set higher standards of compliance which is found missing in the present case," Sebi said.
"Further, the material brought on record shows that the failure of taking prior approval from Sebi before making a change in its policy which was approved by the Compensation Committee/ NSE Board of NSE on November 26, 2012 may be a single instance but, it has led to violation on repeated instances...," the order said.
The instances include encashment of accumulated ordinary leave by Ravi Narain and Chitra Ramkrishna over and above the limit of 360 days at the time of his retirement and her resignation, respectively, it added.
The Securities and Exchange Board of India (Sebi) had received a letter from Ministry of Finance regarding a news report which referring to the NSE's annual report stated that Ramkrishna earned about Rs 44 crore in a period of three years during which she held the position at the exchange and that she earned Rs 23 crore as total remuneration in the last eight months of her tenure.
She was a former MD and CEO of the exchange.
Based on the reference from the ministry, Sebi initiated an examination of the matter.
Under the NSE policy, leave encashment of up to 360 days is permitted for an employee.
However, on comparing the approved compensation and actual gross compensation paid for the period of eight months and two days to Ramkrishna for the financial year 2016-2017, Sebi observed that the NSE board on the basis of the recommendation of its Nomination and Remuneration Committee permitted an additional encashment of 168 days.
The extra remuneration paid to Ramkrishna on account of encashment of this additional 168 days of leave was Rs 1.54 crore, as per Sebi.
Sebi said such nature of default with regard to non-adherence to guidelines prescribed under the SECC Regulations as observed in this case would compromise the regulatory framework and should be dealt with by imposing monetary penalty so as to send an effective message to the market participants as a whole.
Accordingly, Sebi decided to impose a fine of Rs 50 lakh on the NSE.