Consent mechanism: NSE, Sebi to work for early settlement

According to NSE, the stock exchange will work with Sebi on early resolution of the co-location case, which has also delayed a much-anticipated initial public offering (IPO) of the NSE that bankers had said could raise up to $1 billion.

By: ENS Economic Bureau | Mumbai | Published: July 21, 2017 2:04 am
A man walks past the NSE (National Stock Exchange) building in Mumbai July 11, 2017. REUTERS/Danish Siddiqui

The National Stock Exchange of India Ltd (NSE) on Thursday approached the Securities and Exchange Board of India (Sebi) for settlement of the co-location case through the consent mechanism of the regulator. According to NSE, the stock exchange will work with Sebi on early resolution of the co-location case, which has also delayed a much-anticipated initial public offering (IPO) of the NSE that bankers had said could raise up to $1 billion.

“NSE has filed an application today with Sebi for settlement of the colocation issue under the consent process. This application has been filed under the settlement regulations of Sebi. Sebi will review the application and get back to NSE on the future course of action,” said the official spokesperson of NSE in a statement.

Under the consent settlement process, an entity facing a probe by Sebi is subjected to certain fees and restrictions without admission or denial of alleged irregularities, and the regulator thereafter drops its charges and the investigations with a caveat that all disclosures made to it are correct.

In April, Sebi chairman Ajay Tyagi in a press conference had said that the NSE IPO may not happen immediately and could take a few months. Subsequently in June, Tyagi said the regulator is in the process of engaging a forensic auditor for its ongoing investigation into the NSE co-location case to ascertain if brokers made unfair gains in connivance with the exchange officials.

Sebi has also issued show-cause notices to NSE and 14 key management personnel, including former managing directors Chitra Ramakrishna and Ravi Narain, as part of its investigation into alleged lapses in high-frequency trading or algorithmic trading offered through NSE’s co-location facility. While Ramakrishna resigned from the exchange in December 2016, Narain, who was the vice-chairman, quit on June 2.

Algorithmic trading or algo in market parlance refers to orders generated at a superfast speed by use of advanced mathematical models that involve automated execution of trade while co-location involves setting up servers on the exchange premises. It is alleged that some brokers got preferential access through co-location facility at the NSE, early login and ‘dark fiber’ — which can allow a trader a split-second faster access to data feed of an exchange. Even a split-second faster access is considered to result in huge gains for a trader.

NSE’s move to file a consent application with Sebi for settlement of the co-location case has come a few days after Vikram Limaye took over as NSE’s chief executive officer on July 17. Limaye has said his immediate priority is to resolve the regulatory investigation facing the country’s largest bourse and improve relations with stakeholders.

“While currently the institution is faced with certain challenges, I am confident we will overcome these issues by working together and emerge as a stronger and better organisation” said Limaye in his communication to NSE employees earlier this week.

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