Co-location case: Sebi needs to prove basis for disgorgement, NSE tells SAT

The counsel argued that the exchange should have also been given chance to explain its position on the disgorgement order

The National Stock Exchange (NSE) on Wednesday told the Securities Appellate Tribunal (SAT) that the Securities and Exchange Board of India (Sebi) must explain the basis of the disgorgement order it passed against the exchange in the co-location case.

Somasekhar Sudaresan, representing the NSE, said the order had observed that there was no case of fraud or collusion of employees with trading members in the co-location case. Therefore, a disgorgement order was not tenable, he added. 

Sudaresan also said the NSE had been exonerated under the Prohibition of Fraudulent and Unfair Trade Practices norms.

In the securities market, a person or entity making profit by fraudulent means is slapped with a disgorgement order to repay those gains to affected investors, with interest.

Sudaresan argued that the NSE should have also been given a chance to explain its position. So far, the NSE has transferred Rs 2,300 crore to an escrow account to transfer revenues from the co-location business till the probe was completed, according to Sebi’s order. 

The SAT on Wednesday also heard a plea by former NSE managing director Ravi Narain against Sebi’s order barring him from associating with any listed entity for five years for his alleged role in the co-location case.  

The counsel representing Narain argued that the reply of another chief technology officer, which was not included in the order, showed that the principle of disseminating the data in a fair manner was always made known by the senior management of the NSE to the employees. 

Further, the breaches were said to be made against Stock Exchanges and Clearing Corporations regulations, which came into effect only in 2012. 

The Tick by tick (TBT) system was opted under Narain in 2010. The counsel added that when weighing between TBT and others, the former was chosen as it would put lower cost burden on brokers to set up the infrastructure. This way, more brokers could opt for the facility. 

The SAT will, on Thursday, hear the plea by Chitra Ramakrishna, who resigned as MD and CEO of the NSE in December 2016.