Informist, Friday, Sep 13, 2024

--SEBI clears NSE of collusion charge with OPG Sec in co-location case

--CONTEXT: SEBI passes fresh order in NSE co-location case

--SEBI: No evidence to prove OPG Sec's collusion with NSE officials

MUMBAI – The Securities and Exchange Board of India today passed a fresh order in the National Stock Exchange's co-location case, absolving the exchange, former managing directors Ravi Narain and Chitra Ramkrishna, and five other former officials of the charge of collusion and connivance with broker OPG Securities.

The market regulator re-adjudicated the proceedings against the exchange and the seven former officials after the Securities Appellate Tribunal ordered it to do so in its ruling of Jan 23, 2023, on appeals filed by NSE and other connected entities and persons in the co-location matter.

SEBI Whole-Time Member Kamlesh Varshney passed today's order. He disposed of the proceedings against NSE and the seven former officials in the absence of sufficient direct or indirect evidence to establish collusion and connivance between OPG Securities, its directors, and NSE and its former officials.

In a separate order issued today, SEBI held OPG Securities and its three directors guilty of earning unlawful gains of 852.5 mln rupees by virtue of consistently connecting to the secondary server of NSE's co-location facility. The broker and its directors were, however, absolved of charges of connivance and collusion with NSE officials. This order, too, was passed by SEBI Whole-Time Member Varshney.

In the order, SEBI directed OPG Securities and three of the broker's directors, Sanjay Gupta, Sangeeta Gupta, and Om Prakash Gupta, to disgorge the unlawful gains of 852.5 mln rupees "jointly and severally" along with 12% annual interest from May 2015 till the date of payment.

Today's order against OPG Securities and its directors came from a re-adjudication of proceedings against them following the appellate tribunal's Jan 23, 2023, order. The tribunal had on an appeal by OPG Securities and its directors set aside the directions against them in SEBI's April 2019 order to disgorge an amount of 155.7 mln rupees for the violations but sent the matter to SEBI to decide the quantum of disgorgement afresh in light of the tribunal's observations. The tribunal also directed SEBI to consider the charge of connivance and collusion of OPG Securities and its directors with NSE officials.

In today's order, SEBI said it calculated the unlawful gains of 852.5 mln rupees made by the broker and its directors "on the basis of comparison between the average daily profits made by it while it connected to the secondary server and the average daily profits made by it while it did not connect to the secondary server". Both intraday and overnight profits were included in the computation of the final gains.

The two SEBI orders today were linked to an order passed by the market regulator on Apr 30, 2019, in the NSE co-location matter. SEBI had held NSE, its former managing directors Narain and Ramkrishna, and other officials guilty of violations of exchange rules on account of inequitable access to tick-by-tick trading system data at its co-location facility. SEBI had also held broker OPG Securities guilty of unfair trade practices and breach of co-location rules by repeatedly connecting to NSE's secondary server "almost on a daily basis without any valid reason and ignoring the warning and advice given by NSE for the purposes of gaining unfair advantage over other TMs (trading members)".

SEBI had charged NSE with failing to ensure fair and equitable access to the tick-by-tick data feed to all brokers availing the co-location facility and for other connected breaches. The NSE, according to SEBI, had indulged in inequitable distribution in the allocation of internet protocols, and failed to provide for a load balancer or monitor frequent connections to the secondary server.

In the Apr 2019 order, SEBI directed NSE to disgorge 6.25 bln rupees. Narain and Ramkrishna were ordered to disgorge 25% of their salaries drawn for different time spans between 2010-11 (Apr-Mar) and 2013-14.

Nearly all the affected entities moved the appellate tribunal against the SEBI order. On Jan 23, 2023, the tribunal set aside the disgorgement directions against NSE, Narain, and Ramkrishna. It held that disgorgement could only follow a finding and determination of ill-gotten gains, and SEBI had not established that the NSE had unjustly enriched itself from allegedly wrongful acts. It had also failed to prove an exact link between the alleged offence and specific illegal gains made by the exchange, the tribunal held.

In the case of Narain and Ramkrishna, the appellate body said disgorgement could take place only from proven ill-gotten gains and the salary they earned in their capacity as managing directors could not simply be deemed to be the result of the alleged offences. It said SEBI had not proved that the two former NSE heads had made ill-gotten gains from their senior management roles during the period when the alleged violations were taking place.

In that order, the tribunal, however, directed the NSE to pay 1 bln rupees to SEBI's Investor Protection and Education Fund for its lapses and breaches in providing equal, unrestricted, and fair access to its co-location facility to all brokers. End

Reported by Rajesh Gajra

Edited by Rajeev Pai

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