SEBI Lets Off NSE Officials In the Dark Fiber Case

The Securities and Exchange Board of India has exonerated officials of the National Stock Exchange in the dark fibre case, who were accused of allowing an unauthorised vendor to lay dark fibre that was used for high-frequency trading.

Noting that the officials didn’t help Sampark Infotainment Pvt. Ltd.—a network service provider—in laying the lines, the market regulator concluded that it cannot hold the officials guilty based on the evidence available.

This regulator had, in May 2019, fined sixteen entities, including the NSE and two of its former heads, for permitting installation of the dark fiber. NSE had allowed Sampark Infotainment to lay dark fibre for the stockbrokers Way2Wealth Brokers Pvt. Ltd. and GKN Securities, which were separately investigated by the market regulator.

The SEBI, in August 2019, had let off three former senior executives of the NSE over allegations of dereliction of duty in providing preferential access to some brokers and traders through the co-location service.

SEBI’s Findings

SEBI exonerated NSE’s employees on the following grounds:

• NSE’s employees didn’t play a role in establishment of P2P (peer-to-peer) connectivity by Sampark Infotainment.
• Allegations in the complaint against Ravi Narain, R Nandakumar, Suprabhat Lala and Ravi Apte and others were based on the presumption that they occupied key managerial positions during the time when the breach was committed.
• However, after investigation, it was found out that they did not occupy such post positions during the period when Sampark Infotainment was allowed to install dark fiber connectivity in NSE’s colocation facility.
• Therefore, it cannot be concluded that their influence led to the committing of the breach. As a result, none of them can be charged with committing any lapse, breach or giving discriminatory treatment to market participants and favouring a few brokers.
• No evidence is available on record to indicate that the accused NSE officials were responsible for the modifications made to the the bourse’s server technology in 2009 or 2013.
• The market regulator issued two showcause notices—a preliminary notice in 2017 and a subsequent notice after conclusion of investigation in July last year. None of the employees were found prima facie guilty and hence, weren’t named in the July notice.
• Based on the findings, the market regulator concluded that the employees did not violate the Securities Contracts Stock Exchanges and Clearing Corporations Regulations, 2012.

The Securities Appellate Tribunal is currently hearing an appeal by the NSE in the dark fiber and co-location case.