The National Stock Exchange of India Ltd (NSEIL) on Wednesday settled with markets regulator Sebi a case pertaining to alleged violation of Straight Through Processing (STP) services guidelines after paying Rs 4.87 crore towards settlement fee. It was alleged that NSEIL functioned as a STP centralised hub without obtaining the renewal of approval from Sebi and also failed to ensure if its STP service providers were having valid approvals, which resulted in violation of several provisions of the STP Guidelines.
Generally, financial firms use STP to pass information electronically in order to optimise the speed at which they process transactions. This eliminates the need for a hands-on re-entry of data that has already been completed at the source. In a settlement order, Sebi said it was disposing of "adjudication proceedings initiated against the applicant viz. National Stock Exchange of India Limited vide SCN (Show Cause Notice)… dated March 26, 2021".
The order comes after the exchange approached Sebi in April proposing to settle the instant proceedings initiated against it, "without admitting or denying the findings of fact and conclusions of law", through a settlement order. In the show cause notice issued to NSEIL, it was observed that the exchange has been providing services of STP centralised hub.
In this regard, the regulator, in October 2020 asked the exchange to provide copies of initial approval and all subsequent renewal of approvals granted by it till date for acting as a STP centralised hub. However, it was observed that NSEIL failed to comply with the same. It was alleged that NSEIL has not obtained renewal of approval from Sebi as per STP guidelines.
Further, it was noted that National Securities Depositories Ltd (NSDL) and NSEIT Ltd were acting as STP service providers in the securities market. However, on reviewing the compliance with STP Guidelines by NSDL and NSEIT, it was observed that these two entities had also acted as STP service providers without obtaining renewal of approval from the regulator. Also, it was observed that being an STP centralised hub and by providing centralised hub services to STP service providers, NSEIL was required to ensure that the STP service providers were having valid approval. However, it was alleged that the exchange failed to ensure the same.
Pending adjudication proceedings, the exchange filed a settlement application in April this year. Subsequently, Sebi's High Powered Advisory Committee recommended that the adjudication proceedings initiated against the applicant may be settled on payment Rs 4.87 crore towards settlement terms. The panel of Whole Time Members of Sebi approved the recommendation of the committee. Subsequently, the applicant remitted the amount towards the settlement and accordingly, the regulator disposed of the adjudication proceedings initiated against it.
According to a separate order, NSEIT too settled with Sebi a case pertaining to alleged violation of STP guidelines on payment of Rs 21.67 lakh towards settlement charges. It was alleged that NSEIT functioned as STP service provider without obtaining the renewal of approval from Sebi, which resulted in violation of the STP guidelines, as per Sebi order.
It was also observed that NSEIT was initially granted approval by Sebi to act as an STP service provider for a period of three years from June 2004 to June 2007. However, it was alleged that after the expiry of the initial approval granted by Sebi, NSEIT did not apply for renewal of the approval but continues to carry out business as an STP service provider, till date. In this regard, it was noted that company in December 2019 submitted an application for renewal of approval as an STP service provider for the previous blocks from June 2007 to June 2019 (post facto) and also for the current block from June 2019 to June 2022.