After near three-year probe, Sebi action in NSE colo case in a 'few days'

The exchange, its officials, brokers could face enforcement action

The Securities and Exchange Board of India (Sebi) will soon initiate enforcement action against country's largest stock exchange the National Stock Exchange (NSE) and various other entities involved in an infamous co-location (colo) controversy.

The market regulator has been probing the case since early 2015 following multiple complaints that some brokers got preferential access at the exchange’s colo servers. 

“We have received investigation reports from the forensic auditors and also from the internal team. We have taken into consideration their recommendations and will be initiating enforcement action on institution and individuals in the coming few days,” said Sebi chairman Ajay Tyagi, while briefing the press on Thursday.  

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Tyagi further said that the issue was complex and have taken almost one year to finalise. He also clarified that NSE’s proposed initial public offering (IPO) is not related to the on-going investigation.

NSE in the past has said its IPO will be on hold till the colo issue is resolved.  

UNDER THE SCANNER

Sebi has been probing the case since early 2015 

NSE said its IPO would be on hold till the co-location issue was resolved

Sebi's enforcement action would be launched against 14 officials who were named in the show cause notice

CBI had charged Sebi officials for colluding with a stock broker

Earlier this year, the regulator had returned the consent applications by those served the show cause notice

Sources say that Sebi's enforcement action would be launched against all 14 officials who were named in the show cause notice for allegedly violating securities contracts rules and stock exchange clearing corporation norms. The notice had mentioned failure on the part of NSE officials in ensuring fair access and their non-cooperation during the probe.  

ALSO READ: Former NSE bosses Ramkrishna, Narain face Sebi questions over colocation

Tyagi when asked about the recent Central Bureau of Investigation (CBI) action in the same matter said, “Each authority has its own jurisdiction. We have probed the matter under our jurisdiction and as per the securities laws provisions. So, accordingly, it is up to them (CBI), if they have information against Sebi officials on criminal misconduct, they can take action as per the state of law.”

The Central Bureau of Investigation (CBI) had recently filed a first information report in the matter, naming some of the Sebi and NSE officials. CBI charged Sebi officials for colluding with a stock broker who along with NSE officials indulged in fraud, criminal conspiracy and destruction of digital evidence. 

Early this year, the regulator had returned the consent applications by those served the show cause notices, including NSE, citing pending investigation. 

Sebi had independently ordered a joint forensic audit to establish collusion between NSE brokers and officials. The audit was to ascertain if brokers and their clients made any unlawful gains by gaining preferential access to the colo facility of the NSE. The audit reports were submitted to Sebi in March.