Sebi issues fresh show cause notices to NSE, officials in Colo case

Bourse, entities charged with violating Securities Act; exchange may file for consent

The long-pending 'unfair access' case against the National Stock Exchange (NSE) could be headed towards closure with the Securities and Exchange Board of India (Sebi) issuing a set of fresh show cause notices. 

According to sources, the market regulator has dispatched fresh notices to the country's largest stock exchange, and around 20 individuals, including former and current employees, brokers and service providers. Three current key managerial personnel are among those who have been issued notices.
 

The entities have been charged with violation of the Securities Contract Regulation Act and the Prevention of Unfair Trading Practices norms, according to sources. 
 

“The exchange has to submit its response after consulting board members,” said a person privy to the development.  

An email sent to the exchange did not elicit any response. However, sources close to the exchange confirmed that it had received the notices, and was in the process of examining them. 

The fresh notices follow the completion of investigations by Sebi and various auditors into NSE's practices and systems that allowed certain brokers access ahead of others.

“We have received investigation reports from forensic auditors as well as the internal team. We have taken into consideration their recommendations and will be initiating enforcement action on the institution and individuals in the coming days,” Sebi Chairman Ajay Tyagi said last month.
 

According to legal experts, Sebi typically grants two weeks to parties for replying to show cause notices. An entity has to file for consent within two months after being served a notice.

The NSE is likely to once again attempt to settle the case through consent.

“We will once again try to settle the case through consent after examining the show cause notice,” NSE Managing Director and Chief Executive Officer Vikram Limaye had said on Monday.

In March, Sebi returned consent pleas by the NSE and other individuals citing pending investigation. 

In May 2017, Sebi appointed an enquiry officer to probe the potential connivance between NSE employees and brokers. Soon after, the regulator sent show cause notices to 14 individuals, including former managing directors and chief executive officers Ravi Narain and Chitra Ramakrishnan. Other officials who had received notices earlier include Ravi Varanasi (chief of business development), Suprabhat Lala (chief of regulation), Ravi Apte and Umesh Jain (former technology heads) and Subramanian Anand (former chief operating officer). 

 

According to sources, the fresh notices have gone to new people along with the earlier ones.

Sebi found that unfair access was granted to select brokers and there was a breach of systems at the NSE, sources said.

The notices were also served to four brokers, including Delhi-based technology firm OPG Securities, which was the first to log into NSE's colocation server. Service providers such as AlphaGrep, a high-frequency trading firm, and trading member GKN were the other firms that were issued notices for using Mumbai-based Sampark Infotainment's dark fibre technology to connect to the co-location facility of the NSE. 

However, there was no mention of the financial losses that had occurred due to the unfair access obtained by brokers, sources said.
 

The regulator initiated enquiry into the matter in January 2015 based on an anonymous whistleblower complaint that certain brokers provided preferential access to the exchange’s co-location facility.

As part of the probe, the regulator recorded statements of over 100 individuals.