Sebi fines NSE Rs 1,100 crore, bans 2 ex-MDs in co-location scam
New Delhi: Market regulator Securities and Exchange Board of India (Sebi) has directed the National Stock Exchange (NSE) on Tuesday to pay Rs 1,100 crore for favoring a few brokers to make gains using unauthorized trading software, networks and servers in the same room where the main trading servers of the exchange were located.
The market regulator has also banned both the former managing directors (MD) of the exchange- Ravi Narain and Chitra Ramkrishna from the market for the period of five years each. It has directed them to disgorge part of their salaries for the period when the co-lo scam was in operation, according to a ToI report.
The exchange can not come out with its IPO during this period. It has asked NSE not to introduce any new derivatives contracts for the next six months. Through five different orders, apart from banning three brokers for up to five years from the market, it has also asked them to disgorge the illegal gains and interest, aggregating about Rs 51 crore.
Sebi has also banned former finance ministry official and a professor of economics, Ajay Shah from associating with any listed company for a period of two years. He had used the confidential trading data from the exchange for his personal benefits. Many other people and software vendors have also been either banned or fined by Sebi who helped the brokers to make illegal gains. In May 2013, Ravi Narain had resigned as MD of NSE to took over as its vice-chairman, while Chitra Ramkrishna took over as MD of the exchange.
Co-location of servers scam or co-lo scam is the preferential treatment by the NSE to three brokers for giving them access to its trading servers. It continued between 2011 and 2014. In this, the co-location servers are set up by the brokers right next to the trading servers of the exchange, which helps the brokers to have the split-second faster access to trading data as compared to the others who have their servers around the country.
The high-speed computers for high-frequency trading are used to make huge profits. This also involved the putting up optical fibre networks within the exchange’s premises by unauthorized vendors to gain access to servers of the exchange.
According to the national publication, an NSE spokesperson said that the exchange was in the process of examining market regulator Sebi’s order and will take appropriate steps as may be legally advised. Ravi Narain and Chitra Ramkrishna did not reply to the calls and messages made by ToI for their comments.
According to NSE MD Vikram Limaye, the orders will not impact regular trading on NSE and the trust on NSE and the Indian markets for all investors is rock solid.
A whole-time member of Sebi, G Mahalingam, said in the order, “NSE has committed a fraudulent and unfair trade practice as contemplated under the SEBI (PFUTP) Regulations. It is established beyond doubt that NSE has not exercised the requisite due diligence while putting in place the Tick-by-Tick (TBT) architecture (a data feed which provides information regarding any change in the order book on the NSE).”
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