A photograph taken outside the NSE Building in Mumbai. (Source: BloombergQuint)

NSE To Challenge Regulator’s Rs 1,100-Crore Penalty In Co-Location Probe 

The National Stock Exchange decided to challenge the market regulator’s Rs 1,100-crore penalty for allowing preferential access to some high-frequency traders.

The board of India’s largest stock exchange has decided to contest the Securities Exchange Board of India’s orders in co-location and dark fibre cases, the bourse said in a statement accompanying its financial statement for the year ended March. The company said it believes that it has strong grounds to contest the orders, including the penalty, in the Securities Appellate Tribunal.

The decision follows legal opinion provided to the board, a person privy to the development on condition of anonymity since he is not authorised to speak to the media. The exchange is expected to challenge all the orders at Securities Appellate Tribunal in the next few days, he said.

While SEBI didn’t find fraudulent and unfair practices by the NSE and its two former heads Ravi Narain and Chitra Ramkrishna, the regulator found lack of due diligence to ensure fair access of its services to all persons. It ordered the NSE to disgorge Rs 1,000 crore in the co-location probe and about Rs 100 crore in the dark fibre case for violating rules. SEBI also imposed penalties on the two former chief executive officers, besides barring the exchange from accessing the securities market directly or indirectly for six months.

Speaking to BloombergQuint after the SEBI order, Vikram Limaye, managing director and chief executive officer at NSE, had called the penalty “a stiff number” and “much higher than one would have anticipated”. More so because SEBI’s order didn’t find the NSE guilty of any unfair and fraudulent trade practices, he said.

The probe against the exchange stemmed from anonymous whistle-blower allegations and delayed the initial public offering of the exchange. The person quoted earlier said the decision to move SAT won’t have any impact on its IPO plans.

SEBI had ordered the exchange to transfer its revenue from the co-location services to a separate account when the investigation was on. The person said the NSE will not transfer more funds to the account since the penalty is much lower than the already deposited amount. The NSE had transferred Rs 2,258.71 as of March. According to Limaye, the total amount in the account including interest would be more than Rs 2,500 crore.

Also read: Happy That NSE Has Been Exonerated Of Charges Of Fraud, Says CEO Vikram Limaye