The Securities and Exchange Board of India (Sebi) levied a penalty of Rs 1 crore on National Stock Exchange (NSE) for failing to comply with the stock exchange and clearing corporation rules in the co-location case. On Wednesday, SEBI also imposed a penalty of Rs 25 lakh each on Chitra Ramakrishna and Ravi Narain — the former managing director and vice-chairman of the exchange, respectively — stating that they were liable for the acts committed by the stock exchange. So, let’s take a look at the case.

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What is the case all about?

In January 2015, the capital market regulator received allegations that some brokers got preferential access through the co-location facility at NSE, which gave them an unfair advantage. This can allow a trader a split-second faster access to the data feed of an exchange. Though this access may seem infinitely small, it’s enough to give a trader huge gains.

In a letter to SEBI, a whistle-blower alleged that such market manipulation was taking place for many years at NSE’s co-location centre. The letter also stated that the stock exchange had allowed non-empanelled Internet Service Provider (ISP) to lay fibre cables on its premises for few stockbrokers.

What followed after allegations of unfair access in algo trading at NSE surfaced?

The SEBI formed a panel to examine the allegations and found that the architecture of NSE with respect to dissemination of tick-by-tick data through Transmission Control Protocol/Internet Protocol was prone to manipulation and market abuse. It also found that access was given to a few stockbrokers, which gave them an undue advantage. Fifteen stockbrokers were identified. Ramakrishna resigned in December 2016, and Narain quit in June 2017.

In May 2018, the Central Bureau of Investigation (CBI) registered an FIR against a Delhi-based stockbroker, Sanjay Gupta, for manipulating the NSE system. The case is under investigation.

How has SEBI dealt with the case?

In April 2019, SEBI asked NSE to pay Rs 624.89 crore for the lapses, and barred the exchange from accessing the market for funds for six months. The capital market regulator also asked Narain and Ramakrishna to pay 25 per cent of their salaries drawn during a certain period.

With the latest SEBI adjudication order, where does the NSE stand?

NSE’s new management has made many attempts to settle the case through SEBI’s consent mechanism, which allows for settlement of the case without admission or denial of guilt. For its part, SEBI rejected NSE’s consent application even as it decided to proceed with its probe.

The latest SEBI order will bring NSE closer to case closure and is expected to help the latter bring out its Rs 10,000 IPO that has suffered delays on account of the probe.

(Edited by : Aditi Gautam)