The Supreme Court, by way of a partial relief to the National Stock Exchange of India (NSE) in the co-location matter, has directed the Securities and Exchange Board of India (Sebi) to refund `300 crore to the NSE, which was deposited by the exchange according to the disgorgement orders.
However, the apex court did not stay the order of the Securities Appellate Tribunal (SAT) that had struck down the disgorgement order passed by Sebi against NSE.
“The rationale behind such a direction by the apex court was that there are certain questions of law that still require consideration, in the absence of which a hefty penalty would be unjustified,” said Abhinay Sharma, managing partner, ASL Partners.
The court said Sebi investigations lacked pace and was reactive, instead of being proactive.
“It is essential that a thorough investigation be conducted in such high-stake matters, instead of a limited investigation as conducted by Sebi. By directing the NSE to conduct an investigation against itself, the market regulator has clearly violated the principle that none should be a judge in his own cause. The apex court’s direction was in the light of such a casual approach by Sebi in such high-stake matters,” said Sharma.
“The NSE has suffered a major setback due to the co-location case, as it has been trying hard to regain the trust and credibility of investors. Although the exchange’s management has taken various measures to strengthen its systems and processes, the legal dispute with Sebi has been a lengthy and costly affair. Even though the Supreme Court is yet to take a final view in the matter, the interim relief certainly provides the much-needed relief for the NSE and investors,” said Ashutosh K Srivastava, senior associate, SKV Law Offices.
In February, the SAT set aside Sebi’s `624-crore disgorgement order against the NSE. The tribunal, however, upheld the direction given by Sebi to prohibit the NSE from accessing the securities market for six months and carry out system audit at frequent intervals after thorough appraisal of the technological changes introduced from time to time is affirmed. The exchange was directed to deposit `100 crore to the Investor Protection and Education Fund created by Sebi.
The matter pertains to the delayed dissemination of tick-by -tick data referred to as the co-location scam. It was contended that the 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, Chitra Ramkrishna and Ravi Narain, alleging that the exchange deliberately allowed preferential access to some network servers at the exchange.