Sebi faces hurdles in recasting consent panel for NSE

The Securities and Exchange Board of India (Sebi) is facing challenges in recasting a panel to hear the consent plea submitted by the National Stock Exchange (NSE).
 
According to sources, Sebi has initiated talks with a few external candidates to appoint them as members on the so-called high powered advisory committee (HPAC), to replace some of the existing members, who had to recuse themselves due to conflict of interest.
 
Sources said the markets regulator was yet to find suitable candidates. “There could be two possible issues in taking up such position. One, the experts may not be convinced to come on board for this single case. Second, they would not like to be the part of the NSE controversy,” a person explained. Sebi is learnt to have approached a couple of forensic auditors, lawyers and cyber security experts for the positions. Sebi is ensuring that an external candidate should have regulatory experience and good command on cyber security issues.
 
“It is challenging to find the right person who is willing to do justice to the case,” said J N Gupta, managing partner, SES, a proxy firm. According to him, there are two ways to look into the thought process. One, why be a part of something that is full of controversies. On the flip side, one could think I have given this opportunity, so do justice to it.
 
The current HPAC consists of retired Bombay High Court judge Vijay C Daga, advocate Dharmishta N Raval, Deloitte Chairman P R Ramesh and Reserve Bank of India’s ex-deputy governor Anand Sinha.
 
“Ideal scenario would be if they (Sebi) would manage to a get person with the highest integrity, who would discharge his duty in an unbiased manner without looking into the probable impact. Further, he should have knowledge of the subject and could differentiate between use and misuse of the technology,” said an ex-Sebi official, requesting anonymity.
 
The issue came to light after lawyer Raval requested Sebi to allow her to recuse from looking at the NSE consent plea, as she is also serving as an independent director on the exchange’s board. Other two members Ramesh and Sinha face potential conflict. As for Ramesh, Deloitte did a forensic audit of the NSE’s co-location facility, establishing that its trading systems were prone to manipulation. Sinha is an independent director with IDFC Bank, a shareholder and investment bank advising the NSE on its initial public offering (IPO).
 
The NSE on July 20 applied to Sebi for settling the co-location issue.
 
According to regulations, the consent application has to be made within two months of being served a show-cause notice (SCN) by the regulator. Sebi had served SCNs to the NSE and 14 of its current and former key management personnel for alleged irregularities at the co-lo facility. The trading systems used by the NSE at its colo facility were prone to manipulation, which allegedly gave preferential access to select brokers. the NSE has replied to the SCN.
 
The consent process, an alternative dispute redressal mechanism, allows an alleged wrongdoer to settle a pending issue with Sebi by accepting penal action without admitting or denying the guilt. The panel recommends on whether the application be accepted. Thereafter, a panel of two whole-time members of Sebi considers the recommendations and decides.

An uphill task

• Sebi has initiated talks to appoint new members on the consent panel
• It is looking for candidates who have right stature and reputation
• Sebi yet to get positive feedback for the positions
• Raises the issue of getting on board for this single case