Sebi absolves 3 ex-NSE officials, software architect of charges in co-location case

In the high profile NSE co-location case, regulator Sebi on Thursday exonerated three former top officials of the exchange and a software architect associated with a brokerage firm, but asked the bourse to probe the role of two others.

Sebi has been conducting an examination with respect to co-location facility provided by the National Stock Exchange of India Ltd (NSE), including issues with respect to preferential access given by NSE to certain trading members for Tick-by-Tick data feed.

This service apparently allowed the first one to connect to the lowest load server getting advantage in terms of receiving the data faster than others, while few brokers were given preferential access to backup servers of NSE TBT system.

Sebi probe found that the NSE TBT architecture was prone to market abuse thereby compromising market fairness and integrity, as it provided quicker order dissemination to those who managed to login early.

If one entity is ahead of the other while logging in the morning, it gets information ahead of the other throughout the day. Further, it was not important to be absolutely the first one to login, as it simply gave one probabilistic advantage to log-in as early as possible.

OPG Securities allegedly tried to exploit this TBT architecture by not only logging in first on select servers but it even tried to crowd out others by occupying the second and the third positions on those servers.

It was alleged that OPG was always consistently logging in first on servers with better hardware and it also appeared plausible that OPG and some other brokers were given preferential access to backup servers of the NSE TBT system.

Apart from charges and allegations against OPG and its directors, it was alleged that Aman Kokrady, being the software architect and developer for OPG was actively involved in perpetuating the fraud in securities market by developing and designing the software for OPG for unfair advantage and had thus violated Sebi's regulations.

However, OPG represented before Sebi that Kokrady was exonerated by the regulator in another order in April this year from all allegations levelled against him which were identical to the allegations in this case and sought disposal of the proceedings without any penalty.

Noting that Sebi's earlier order did not make any adverse findings against Kokrady and had instead exonerated him with respect to the charges levelled against him, Sebi's adjudicating officer has now ruled that the case does not warrant imposition of any monetary penalty on Kokrady and therefore the show-cause notice issued to him was being disposed of.

In a separate order in the NSE co-location case issued on Thursday itself, Sebi also disposed of its show-cause notice against three ex-executives of NSE, but asked the exchange to probe the role of two others and take necessary action.

In this case, it was alleged that Subramanian Anand, being the Chief Strategic Officer (from April 2013 to March 2014) and Group Operating Officer (from April 2014 to October 2016) of NSE, had failed to take any step to ensure proper systems, checks and balances so as to provide fair and equitable access to all.

The adherence to the principle of 'fair and equitable' was left to the technology team without any specific guidance. Thus, he had also failed to perform his role in establishing adequate systems leading to the scenario whereby certain brokers were allowed to breach the norms of fair and equitable access.

Besides, it was alleged that Umesh Jain, being the CTO of NSE during October 2012 to June 2015, and Ravi Apte, being the CTO during 2007 to September, 2012, had shown laxity and dereliction of duty by not taking adequate steps to make the TBT architecture robust and prevent it from being manipulated during the relevant times.

It was further alleged that Mahesh Soparkar, being the head of PSM team during 2009-13, and Deviprasad Singh, being the head of PSM team during 2013-16, were responsible for monitoring unauthorised connections to the secondary server and following up with COLO team to ask defaulting members to stop connecting to this server.

Anand, however, told Sebi that that the co-location facility was already made available at NSE and the allegations pertained to the period prior to his joining NSE and that he was never a party to the COLO Architecture either directly or indirectly at any point of time during his tenure at NSE.

The Sebi order noted that the regulator had initiated parallel proceedings against these persons against another section of the Sebi Act for the similar charges, wherein certain orders were also stayed by the Securities Appellate Tribunal.

Sebi's adjudicating officer noted that Anand, Apte and Jain have been completely exonerated with respect to the charges against them in the earlier order, while Soparkar and Singh have been found to have failed to discharge their duties as PSM team heads.

However, the conduct of Soparkar and Singh was found to be suitable for handling by NSE "so as to fix accountability on the employees, as deemed fit and appropriate."