Mumbai: The National Stock Exchange of India Ltd's has received two notices from the Securities and Exchange Board of India (Sebi).
One of the communications has asked the exchange to divest its entire 37% stake in Computer Age Management Services Limited (CAMS) and the second is a showcause notice on the appointment of key managerial personnel - Anand Subramanian.
While announcing its December quarter earnings, the stock exchange had disclosed that Sebi, on 4 February, asked it to divest its entire stake in CAMS within a year. NSE has already started the process of offloading its stake.
Sebi, in its 4 February letter, alleged that NSE's acquisition of stake in CAMS in 2013-14 was done without its approval.
The markets regulator has also prevented NSE from exercising its shareholding rights and these stand capped, said a Sebi official. With a 37% stake, through its subsidiary NSE Investments Ltd (NSEIL), NSE has an effective control over the market intermediary.
Interestingly, NSE had acquired stake in CAMS after Sebi had informally communicated to its rival BSE Ltd, in 2010, that it was not in favour of the exchange acquiring stake in the market intermediary as it could pose conflict of interest.
BSE was interested in acquiring a 51% stake in CAMS but walked away after the regulator's disapproval.
"NSE at that time did not seek the regulator's approval as there was nothing explicitly laid down in Stock Exchange and Clearing Corporation (SECC) regulations," a person, who was privy to decision making at NSE in 2013-14, explained.
Sebi's directive to NSE also poses issues for CAMS upcoming public offering. CAMS filed an Initial Public Offering (IPO) with Sebi on 10 January, looking to offload 12.16 million shares. Of this, 40 lakh shares are being sold by another shareholder Warburg Pincus and over 50 lakh shares by NSE.
NSE's entire stake cannot be offloaded in the IPO. According to norms, its remaining stake would be locked in for one year.
"NSE would find it hard to comply with both. If its remaining shares were to be locked in for one year post CAMS public offer it would not be able to complete the offloading process within the Sebi timeline," said a lawyer who consults with NSE.
The second Sebi notice pertains to alleged irregularities in the re-appointment of exchange's chief strategic advisor Anand Subramanian as group operating officer and advisor to managing director, by NSE's former MD and CEO Chitra Ramakrishna.
As per Sebi regulations, Subramanian's appointment had to be routed through the exchange's Nominations and Remuneration Committee which was not done. NSE was first questioned about the appointment in October 2017.
Subramanian was first appointed as a consultant in April 2013. Effective April 2015, he was re-designated as group operating officer and advisor to MD. Subramanian was never listed as a key managerial personnel by NSE, while Sebi regulations term COO as a key post.
NSE had then said that since he was hired as a consultant his appointment did not need to pass through the NRC.
Sebi notice to NSE also alleged that Ramakrishna had shared "certain internal information pertaining to NSE with an alleged third party." The third party here being Subramanian. Mint could not ascertain the nature of information shared by Ramakrishna.
NSE has applied to Sebi for settlement of the alleged lapses through the consent route.
The exchange is also grappling with Sebi penal action on alleged unfair access given to some brokers on its co-location platform. Sebi's nearly ₹1000 crore disgorgment order on NSE is currently being adjudicated by Securities Appellate Tribunal (SAT).