Sebi fines NSE ₹1,100 crore

Market regulator Sebi has asked the National Stock Exchange, the largest stock exchange in India, to pay about Rs.1,100 crore for favouring a few brokers to make illegal gains by using unauthorised trading software, networks and servers in the same room where the exchange’s main trading servers were located. Sebi also banned Ravi Narain and Chitra Ramkrishna, both former MDs of the exchange, from the market for five years each and also asked them to disgorge part of their salaries for the years when NSE had demonstrated favouritism to three brokers — OPG Securities, GKN Securities and Way2Wealth Securities — over all other brokers.

The regulator also asked NSE not to introduce any new derivatives contracts for the next six months. Sebi, through five different orders, also banned the three brokers from the market for up to five years and asked them to disgorge illegal gains and interest on the same, aggregating about Rs.51 crore.

Sebi also banned Ajay Shah, a former finance ministry official and a professor of economics, from associating with any listed company for two years. Shah had used confidential trading data from NSE for personal benefits. Several other people and software vendors who played crucial roles in facilitating the brokers make illegal gains have also been either banned or fined by Sebi. While Narain had resigned as MD of NSE in May 2013 and took over as its vice-chairman, Ramkrishna took over as MD. NSE’s preferential treatment to the three brokers for access to its trading servers, called co-location of servers scam or co-lo scam, continued between 2011 and 2014.

For its role in the scam, Sebi also banned NSE from the stock market for six months, meaning the exchange cannot go for its IPO, that has been stalled for years on regulatory directions.

According to Vikram Limaye, MD, NSE, the orders will not impact regular trading on the NSE and “the trust on NSE and the Indian markets for all investors is rock solid”. He also pointed out that the matter pertained to incidents that happened five to nine years ago. Since then NSE’s systems have undergone a sea change and is much robust than earlier, he said. Limaye joined NSE in July 2017, as part of Sebi’s ‘clean up process’ of the bourse’s board and management post the co-location scam.

In 2010, NSE had started a facility to allow brokers to place their servers in the same room where the exchange had its trading servers, also called the trading engines. These servers are the core of any exchange. Brokers always try to have the fastest access to trading engines and hence nearer their own servers to the engines, faster is their ability to execute orders.

The three brokers had used a glitch in NSE’s trading system to get faster access to the trading engines and NSE, knowingly allowed them to exploit that glitch to make illegal gains. 

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