Sebi holds settlement hearing over probe in 2021 trading halt at NSE

Written submissions sought after hearings held in August

The Securities and Exchange Board of India (Sebi) has held hearings for maintainability of consent proceedings which seek to settle the probe into a trading halt at India’s largest stock exchange.

The regulator held a hearing on August 24, following an earlier hearing on May 4; according to a note in the stock exchange’s September quarter results. These were preliminary hearings over the maintainability of consent proceedings which seek to settle outstanding regulatory issues by paying an amount without accepting or denying guilt. The NSE and its subsidiary in charge of ensuring trades are honoured-the NSE Clearing Limited (NCL)-had filed to settle the matter in August 2021. The regulator has asked them to file written submissions after the hearing in August 2022.

The NSE had a trading halt on February 24, 2021. Investors could not buy or sell company shares in the cash segment of the stock exchange. Trading also halted in the derivative segment, which allows for trade in instruments whose value can be based on an underlying share or index. The NCL’s risk management, clearing and settlement, index and surveillance systems were all unavailable. The regulators sought a detailed report on the root cause of the failures and asked the exchange and its subsidiary to pay Rs 25 lakhs each. The market regulator issued a show cause notice to the two entities and employees for non-compliance, noted the NSE results.   

“In this regard, NSE and NCL have taken necessary remedial actions and both have filed consent applications with Sebi on August 31, 2021 against which preliminary hearing on maintainability of the said consent application has taken place on May 4, 2022 and August 24, 2022. NSE and NCL have been directed to file written submissions against the same which has been filed with Sebi,” it said.

The regulator’s annual report noted that there have only been two new applications for similar settlements filed during the financial year 2021-22 (FY22). It already had 24 pending applications. It allowed compounding in 17 cases and did not reject any applications in FY22. This has left nine pending applications as of the end of the financial year (see chart).  

Several brokers had complained around 10am that stock and index quotations were not changing on the NSE on February 24, according to an earlier report by Business Standard. The NSE halted trading in both the cash and derivative segments before 12pm, citing telecommunication issues. Brokers attempted to cancel all pending derivative orders, and close open positions in the cash segment of the BSE close to 3pm. Several stocks show price distortion. The stock exchanges announced shortly after 3pm that markets will remain open until 5pm.

Emails sent to Sebi and the NSE did not immediately receive a reply.