NSE’s settlement plea in the co-location case rejected by Sebi

Sebi rejects NSE’s settlement plea in OPG matter

Market regulator the Securities and Exchange Board of India (Sebi) has rejected a settlement application filed by the National Stock Exchange (NSE) in a case pertaining to the colocation matter, said two people with direct knowledge of the matter.

The exchange had filed under the consent mechanism of Sebi which allows market participants to settle any alleged security market violation by paying a fee and without admitting or denying guilt. However, Sebi rejected NSE’s consent plea and instead will pass a regulatory order against the exchange, said people cited above.

The case pertains to alleged connivance between NSE officials and OPG Securities – which is one of the brokers accused of getting preferential access to NSE’s servers thereby providing them an undue advantage over other traders.

Emails sent to Sebi and NSE remained unanswered.

In 2019, Sebi had passed a series of orders in the colocation matter in which one of the key accusations was alleged collusion between NSE employees and OPG Securities. This order was challenged by both NSE and OPG Securities in the Securities Appellate Tribunal (SAT). Last January, SAT remitted the matter back to Sebi asking the regulator to consider the charge afresh.

“After rejecting the consent plea, Sebi has gone ahead with the procedure. Last week, Sebi provided a chance of personal hearing to NSE in the matter and is expected to pass an order in the matter soon,” said a person cited above. “SAT had observed Sebi’s 2019 order did not have sufficient evidence to link NSE and OPG employees. Sebi however is taking a view that there is enough evidence to link both,”

The allegations against NSE in the matter are that OPG Securities managed to log in to Tick by Tick Data Feed(TBT) ahead of others there by getting an advantage over the rest of the market. Although NSE was aware of OPG getting such preferential access, did not take any action against the broker, said the second person cited above.

There are also allegations that NSE did not put in place the so-called load balancers which would have ensured more transparent access to participants and would have reduced any special advantage OPG had over others.

“The question of law is whether NSE employees were working with OPG or is it a general failure on erstwhile exchange officials to take decisive action against OPG,” said the second person cited above. “Connivance charge needs higher evidence like documents showing flow of money between the parties or material suggesting some NSE officials tampered the system to favour OPG.”

OPG Securities is a Delhi-based broker promoted by Sanjay Gupta and is key accused in the colocation case. Sebi had imposed a fine of Rs 5 crore on the broker in 2019 for its role in NSE colocation scam, apart from barring its promoters from capital markets. In 2022, the CBI had arrested Sanjay Gupta in relation to the colocation scam.

Sebi has passed several orders in the NSE colocation case so far with each order looking into specific types of violations. Over the last year, SAT overturned several orders of Sebi in the case including the Rs 625 crore disgorgement imposed on NSE. Also, orders pertaining to penalties levied on former employees of NSE have also been overturned by SAT.