In a development that is likely to pave the way for the National Stock Exchange’s (NSE) long-awaited initial public offering (IPO), the exchange has settled a matter of alleged misuse of its trading access point (TAP) system by paying the markets regulator Rs 643 crore.
This comes close on the heels of the Securities and Exchange Board of India’s (SEBI) decision to withdraw the charges against the NSE and its seven former employees, including Chitra Ramkrishna and Ravi Narain, in the decade-old co-location facility case, citing absence of evidence to support the allegations.
In February 2023, the markets regulator had issued a show-cause notice to the exchange in the TAP matter, alleging that the stock exchange did not take active measures to prevent certain brokers from bypassing the access point system, which was used by brokers to maintain communications with the NSE’s trading system.
The regulator also alleged a delay in the appointment of a chief information officer by the NSE and non-compliance with cybersecurity regulations on failure to disclose software deficiencies to its own technology panel.
Apart from the NSE, those who settled the case are Vikram Limaye, Umesh Jain, GM Shenoy, Narayan Neelakantan, VR Narasimhan, Kamala K, Nilesh Tinaikar, R Nandakumar, and Mayur Sindhwad.
The NSE paid the combined settlement amount on September 25 “without admitting or denying the findings of facts and conclusions of law, through a settlement order”.
The settlement amount was determined by a high-powered advisory committee and later approved by a panel of whole-time members, the order said.
Along with the settlement amount, eight of the applicants had undertaken pro bono community service of 14 days during the year. “In addition to the aforementioned settlement amount, pro bono community service of at least 14 days during the current financial year was undertaken by all the applicants, except the NSE and GM Shenoy, as a non-monetary settlement term,” the order signed by SEBI whole time member Ashwani Bhatia said.
In August, the NSE had again tried to settle the regulatory investigation into the TAP case with revised terms of settlement, after initially filing a settlement application in 2023.
The TAP software was introduced in 2008, and was used until 2019 for equities and 2020 for other segments despite alternatives being introduced in 2016.
In last month’s order dismissing the case against Ravi Narain and others, SEBI had said there was no evidence to establish any collusion with stock broker OPG Securities, which had gained unfair access to the exchange’s secondary server.
The co-location facility allows stock brokers to place their servers at a stock exchange in consideration of a fee, giving them access to price data a fraction of a second before other participants.
With the reduction of legal proceedings against the NSE, the much-delayed IPO for which the exchange has applied for a no-objection certificate (NOC) with the SEBI, is expected to gain momentum.
The exchange had first sought SEBI’s approval for the IPO in 2016. However, the offer document was returned by the regulator in 2019 amid the ongoing investigation in the co-location scam and reduction in the offer size by more than 50%.
After this, the NSE submitted at least three applications seeking the regulator’s no-objection certificate to file the draft IPO prospectus, with the latest in June 2022, court documents show.