Sebi has returned NSE consent plea citing pending investigation: Sources

Exchange has the "liberty" to re-file once all investigations are complete, says the market regulator

The National Stock Exchange (NSE) will have to re-file not just the initial public offer (IPO) document but also the consent plea for settling the co-location issue with market regulator Securities and Exchange Board of India (Sebi).

As per sources, Sebi has returned NSE's consent application citing pending investigations.

In a communication dated February 26, Sebi has told NSE that the current consent application is being returned as regulations don't allow any application for settlement if an investigation is not complete.

NSE will be at the "liberty to file appropriate application after completion of all the investigation" on the co-location issue, Sebi has further said.

Sebi has returned the consent applications seven months after NSE filed it.

The consent mechanism is an alternative dispute redressal mechanism that allows an alleged wrongdoer to settle a pending issue with Sebi by accepting a penal action without admitting or denying the guilt.

On July 28, NSE, along with some of its former and current employees, had submitted their consent plea to settle the co-location controversy, where certain brokers gained unfair access to the exchange's trading facility.

The consent applications were filed within two months of being served a show cause notice (SCN) by Sebi for the alleged irregularities.

Former managing directors Ravi Narain and Chitra Ramkrishna are among the 14 individuals who were served the SCN.

"NSE is in receipt of a letter from Sebi returning the consent application filed by NSE in the colocation matter, on account of ongoing investigations relating to the same matter," NSE said in a statement.

 

NSE intends re-file the consent application after investigations are complete, it further said.

Currently, a Sebi panel is trying to establish if brokers or exchange officials made any unfair gains due to the lapses at NSE's co-location facility.

These findings are a centre-piece for solving this long-pending issue, say experts.

“It was imperative for Sebi to not dispose of the consent plea since the quantum of alleged unfair gains made by the concerned parties is still subject matter of an ongoing investigation. Since it's not a rejection, the application can be re-filed at an opportune time once the investigations conclude,” said Tejesh Chitlangi, partner, IC Universal Legal.

"NSE is committed to resolving the regulatory issues expeditiously," said the exchange, which in November had submitted two audit findings to Sebi relating the co-location matter.

The reports prepared by EY and Indian School of Business (ISB), Hyderabad too are being looked at by Sebi.

In the meantime, NSE's IPO application too has been kept in abeyance by Sebi pending the resolution to the co-location issue.

"As stated earlier, the timeline for the IPO is dependent on the resolution of the regulatory matters with Sebi. We are hopeful we will be able to do the IPO in fiscal 2019," NSE said.

NSE had filed its IPO document in December 2016. As much as 27 shareholders planned to offload 111.4 million shares (22.5 per cent stake) through the IPO.