Markets regulator Sebi on Wednesday slapped a fine of Rs 5 lakh on SMC Global Securities for not adhering to the code of conduct prescribed for a stock broker while using NSE's co-location facility.
A Sebi probe found that SMC Global Securities had connected to the secondary or fall-back server on several occasions during 2010-2015 without making complaint to the National Stock Exchange (NSE) and despite the exchange's reprimands.
The NSE co-location guideline allows connection to secondary server when the tick-by-tick or TBT primary server data is not available.
Sebi conducted a probe to examine the connivance of NSE's employees (past and current) with stock brokers (including their past and current employees) during 2009-16 and the role of stock brokers alleged to have benefited from preferential access to the exchange's system, including quantification of gains, from such mechanism.
The investigation, which focused on the role of SMC -- a member of NSE and registered stock broker -- found that it logged in to the secondary server repeatedly with its full knowledge that such conduct was not permitted, as informed by NSE several times.
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"The only default on the part of the noticee (SMC) is that it connected to the secondary server repeatedly without making complaint to NSE and despite reprimand from NSE," Sebi said in its 31-page order.
According to Sebi, the charge against SMC was only the non-adherence to the code of conduct and there was no allegation of any market misconduct or abuse of the system.
Further, there was no allegation on the broker having gained any advantage over other trading members by connecting to the secondary server as found in this case.
The regulator said that SMC violated code of conduct specified for stock brokers under Sebi's norms and accordingly imposed a penalty of Rs 5 lakh.
The code of conduct mandates that a stock broker shall act with due skill, care and diligence in the conduct of all its business.
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