The National Stock Exchange Ltd. has filed a consent plea with the market regulator to settle a probe into alleged preferential treatment to high-frequency traders, an issue that has delayed its Rs 10,000-crore initial public offering.
The consent process allows companies being investigated for purported wrongdoing to avoid litigation and settle the matter by paying a fine. The country’s largest stock exchange filed the application under the settlement regulations of the Securities and Exchange Board of India, two days after Vikram Limaye took over as managing director and chief executive officer.
The NSE will work with SEBI on early resolution of the matter, the exchange said in a release. The regulator will review the application and get back to the exchange, it said.
SEBI’s probe follows a whistleblower’s allegation that the exchange granted a few brokers and traders preferential access to its systems through its co-location service. It allows them to place servers in the exchange building and directly connect with its systems.
Limaye had told BloombergQuint that the NSE has proposed to the regulator that it may be easier to adopt the consent process for early resolution.
An external audit conducted by Deloitte India had found that the exchange’s systems are prone to manipulation, the NSE had disclosed in its draft red herring prospectus filed with the market regulator for its IPO.
NSE had indicated that the investigation could result in damages and feared “additional regulation of our business, substantial penalties, loss of reputation or client confidence or restrictions on our operations or claims for damages”.
The co-location service contributed Rs 554 crore, or nearly 30 percent of its revenue for the year ended March 2016, according to the prospectus. It stood at Rs 303 crore in 2016-17. The NSE transferred Rs 375.5 crore earned for September 2016 to March 2017 period to an escrow account on the directions of SEBI.