The Securities Appellate Tribunal on Monday set aside the `624 crore disgorgement order against the National Stock Exchange of India (NSE) by the Securities and Exchange Board of India (Sebi).
NSE has been directed to deposit `100 crore for lack of due diligence to the Investor Protection and Education Fund created by Sebi.
The tribunal, however, upheld the direction given by Sebi to prohibit NSE from accessing the securities market for six months and carry out system audits at frequent intervals after thorough appraisal of the technological changes introduced from time to time is affirmed.
The direction of Sebi’s whole time member (WTM) directing NSE to initiate enquiry against its employees was also affirmed.
“NSE has a duty to ensure transparency and fair access to all the TMs (trading members). For lapses committed by NSE, directions under Sections 11 and 11B could be passed and some of the directions of the WTM were rightly passed. However, the direction for disgorgement was unwarranted but the appellant NSE cannot be allowed go scot free and is required to pay a price for the lack of due diligence on account of human failure to comply with the circular in letter and spirit,” the SAT order said on Monday.
The tribunal also set aside the direction to disgorge 25% of salary from Ravi Narain and Chitra Ramkrishna, founder members and former chiefs of the exchange, as well as the direction to prohibit the duo from associating with any listed company or a market infrastructure institution or any other market intermediary for five years, substituting it for the period undergone by them. The court allowed appeals for Narain and Ramkrishna.
The tribunal affirmed the violations committed by OPG Securities but asked Sebi to do a rethink on the disgorgement amount of `15.5 crore within four months in the light of the tribunal’s observation.
“We direct the whole time member to consider the charge of connivance and collusion of OPG and its directors with any employee/officials of NSE. Further, the WTM will decide the issuance of direction, penalty and concealment of vital information and will further reconsider the issue relating to crowding out of other market participants,” the SAT order read.
The CBI, meanwhile, stated later in the day that it is examining the SAT order.
The tribunal’s verdict pertains to a matter relating to the delayed dissemination of tick-by-tick data referred to as the co-location scam. It was contended that NSE had violated the fundamental objective of ensuring equal access to all market participants and that certain trading members with vested interests were given preferential access to the data. The members or high-frequency traders with prior access to the data indulged in front running, market abuse and fraud.
This led the market regulator to pass a series of orders against the NSE and former chief executives, Ramkrishna and Narain in 2019, alleging that the exchange deliberately allowed preferential access to some network servers at the exchange.