The Securities Appellate Tribunal has overturned the capital-market regulator’s disgorgement order against the country’s largest bourse in the co-location case, which is a significant victory for the National Stock Exchange (NSE).
SAT asked the market regulator, “how SEBI directed NSE to conduct an investigation against itself,” in its order.
The tribunal also ordered NSE to contribute Rs 100 crore to the SEBI-established Investor Protection and Education Fund (IPEF). The order stated that the capital markets regulator will adjust the amount based on NSE deposits made in 2019 and 2021.
“The excess amount along with interest accrued shall be refunded by the SEBI within six weeks,” the tribunal said.
“The direction to disgorge 25 per cent of the salary from Ravi Narain and Chitra Ramkrishna is set aside. The direction prohibiting Narain and Ramkrishna from associating with any listed company or a market infrastructure institution or any other market intermediary for a period of five years is set aside and substituted for the period undergone by them,” SAT said.
“In our opinion, considering the gravity of the alleged charges, SEBI should have itself conducted an investigation/enquiry instead of delegating it to NSE to conduct an investigation,” SAT said. “It is strange and it does not stand to reason as to how SEBI directed NSE to conduct an investigation against itself. It is clear that a casual approach was adopted,” SAT said.
The co-location scam refers to giving preferential access to NSE’s trading platform to high-frequency traders and brokers.
In April 2019, Sebi ordered NSE to pay IPEF Rs 624.89 crore and interest at a rate of 12% annually beginning on April 1, 2014. In addition, SAT stated that the SEBI’s order to forbid Narain and Ramkrishna from collaborating with any listed company, market infrastructure institution or other market intermediaries for a period of five years was quashed and that the time they spent doing so was substituted. The order upheld the SEBI’s order to NSE to start an investigation into its employees.
According to the tribunal, SEBI’s findings regarding OPG’s violations are confirmed. However, the markets regulator’s order requiring OPG and its directors to pay back Rs. 15.57 crore in addition to interest at a rate of 12% beginning on April 7, 2014, has been canceled.
According to the SAT order, SEBI will decide the amount of disgorgement from scratch. It gave the market regulator four months to calculate.
We conclude that none of the allegations made in the show cause notice can be proven. While issuing the disputed order, the WTM (Sebi Whole-time Member) himself dropped many of the charges. According to SAT, “The WTM held that the charge of NSE of fraud and unfair trade practice under the PFUTP Regulation is not made out.”
It has not been proven that NSE and its employees have conspired with TMs, particularly OPG. It stated that the WTM has not made the claim that the NSE suppressed material facts and did not cooperate with the authorities investigating the case.
According to SAT, “the direction to disgorge, in our opinion, cannot be sustained” despite the fact that “NSE has not indulged in any unethical act or has unjustly enriched itself.”
However, NSE has not followed the circular and has not followed its own standards and guidelines. It stated that the SCRA Act places a significant burden on the exchange to prevent undesirable transactions.
