Market regulator Securities and Exchange Board of India (SEBI) has absolved National Stock Exchange (NSE)'s former chief Ravi Narain, vice president Suprabhat Lala and eight others in the co-location (colo) scam where brokers were alleged to have received preferential access to the trading systems of the bourse. SEBI says all these key executives of NSE neither had a role as director or key management personnel (KMP) in facilitating Sampark Infotainment Pvt Ltd to lay down dark fibre line to point-to-point (P2P) connectivity nor in modifying a 2009 circular from the Exchange.
The order passed by SK Mohanty, whole time member of SEBI
, says, "...from the records, I do not find any evidence or any material that establishes or even remotely indicates any role played by any of the noticees as far as establishment of P2P connectivity by 'Sampark' is concerned. There is nothing on record which could even suggest that any of the entities was occupying a post of director or KMP and on account of holding of such post, the respective noticees could be fastened with the accountability for the lapses, breaches and discriminatory treatment meted out to the market participants by permitting a selected few stock brokers to avail dark fibre connectivity from 'Sampark'."
"In my view, based on the evidences available on record and after having considered the same, it cannot be held that the noticees herein were involved in facilitating 'Sampark' to lay down the dark fibre line to provide P2P connectivity.
There is also no evidence to suggest that noticees had any role in modifying the Circular of 2009 in the year 2013. Consequently, they were also not responsible for the non-transparent dissemination of the modification so made in the above mentioned circular of 2009 and therefore, the noticees cannot be held responsible for any misconduct or non-compliance as far as laying of P2P connectivity using dark fibre is concerned."
Mr Monahty further says, "I observe that the allegations pertaining to the involvement of the Noticees have been made only because of their association in some capacities with National Stock Exchange India Ltd (NSEIL during the relevant period of time. It is an admitted position that none of the noticees was occupying the position of a director in NSEIL, more particularly during the relevant period, when 'Sampark' was allowed to lay down dark fibre lines to establish P2P connectivity between the two stock exchanges for a few selected stock brokers," the order says.
Those exonerated by SEBI includes, Ravi Narain (former MD & CEO), R Nandakumar (former senior vice president -VP for operations), Mayur Sindhwad (chief operating officer-COO for trading), Sankarson Banerjee, (chief technology officer-CTO for projects), G Shenoy (CTO for operations), Suprabhat Lala (vice president -regulations), Ravindra Apte (former CTO), N Muralidharan (former CTO) and Jagdish Joshi (former head for colo).
whistleblower wrote to the SEBI with a copy to Moneylife, alleging the NSE was giving a few high-frequency brokers preferential access to its servers by allowing them to place their servers in the NSE premises that benefited both the parties at the cost of others.
In May 2019, SEBI had indicted well-known market economist Ajay Shah and Suprabhat Lala, a senior official of NSE in the algo trading scam. The order said a private firm of Sunita Thomas (Mr Lala’s wife and sister-in-law of Ajay Shah), 'commercially exploited' confidential data obtained from the NSE for writing algo trading software. SEBI had also directed NSE to take legal action against Mr Shah, Ms Sunita Thomas, her firm Infotech Financial Services Pvt Ltd, and Krishna Dagli, director of the company. One of the orders indicts, Ravi Narain and Chitra Ramakrishna, both former MDs of NSE overlooking conflict of interest in awarding contract to Infotech Financial. (Read: NSE Algo Scam: SEBI Says Ajay Shah, Suprabhat Lala & Their Wives ‘Commercially Exploited’ Confidential Data)
Before that in April last year, SEBI had ordered disgorgement of profits from NSE and salaries of former MDs, Ravi Narain and Chitra Ramkrishna. The regulator has also asked the exchange to disgorge an amount of Rs624.89 crore along with interest calculated at the rate of 12% per annum to the Investor Protection and Education Fund (IPEF).
In a second order last year, related to “dark fiber” involving unregistered service provider, Sampark Entertainment, SEBI had said that since NSE is a recognised stock exchange and the leading market infrastructure institution, it occupies a pivotal role as a front line regulator. Therefore apart from reformatory steps under section 11, 11(4) and 11B of the SEBI Act, 1992 and Section 12A of the SCR Act, 1956, “considering the gravity of the allegations that have been established…, additional exemplary directives need to be issued could pose an effective deterrence and dis-incentive to the noticee (NSE) to perpetrate such kind of violations in future so far as administration and governance of its Colo facility is concerned.”
SEBI has directed NSE to deposit a reasonable portion of revenue earned by NSE through its co-location facility during 8th May 2015 to 10th September 2015 to the Investor Protection and Education Fund (IEPF) of SEBI. This amounts to Rs.177.43 Crore.
Since NSE has allowed Sampark “to provide P2P connectivity without having proper licence, to a few stock brokers in a preferential manner while denying the same service to other stock brokers and the said illegitimate service continued for a period of four months, SEBI has asked for Rs62.58 crores to transferred to IPEF. Two co-location traders Way-2-Wealth and GKN Securities, were found to have “fraudulently availed of P2P connectivity with the help of an unauthorized Telecom Service Provider (Sampark) at the Colo facility of NSE… in a manner to gain undue advantage in terms of low latency and high bandwidth in data transmission as compared to other stock brokers in securities market.”
Hence, SEBI has asked them to deposit an amount equivalent to income from trading in their proprietary trading accounts during the period Sampark was permitted to provide P2P connectivity to them, to the IPEF. This comes to Rs15.34 crores for W2Wand Rs4.9 crore for GKN.