MUMBAI: The National Stock Exchange of India (NSE) board on Thursday evening said it will approach the Securities Appellate Tribunal (SAT) against the three Securities and Exchange Board of India (Sebi) orders on the co-location issue.

“The holding company is in the process of filing an appeal to contest the aforesaid orders with the Hon’ble Securities Appellate Tribunal, the future outcome of which is uncertain at this stage," the NSE said in its consolidated financial statements for 2018-19.

The exchange is yet to file the appeal, but will mark one of the rare instances where the exchange is challenging the regulator’s orders.

The NSE did not immediately offer any comment on the story.

The move comes after the SAT gave interim relief to 18 out of the 28 entities and personnel barred by the Sebi in the co-location issue.

On 30 April, the markets regulator had found that the exchange had failed to provide equal access to all trading members. The NSE’s systems were at fault and gave preferential access to select brokers when they accessed its high-speed algorithmic trading platform. The NSE was directed to deposit nearly 1,100 crore in an investor fund and was barred from accessing the capital markets for six months. It had also asked two former NSE chief executives, Ravi Narain and Chitra Ramkrishna, to return 25% of their salaries they had received during the relevant period.

Sebi had found lapses in three orders—lack of governance in data-sharing agreement with research organisation Indira Gandhi Institute of Development Research (IGIDR), allowing an unregistered service provider to lay dark fibre cable on its premises, and giving preferential access in tick-by-tick data (wherein market information is provided in sequential manner).

The NSE board said that based on legal opinion they have not provided for any liability from these orders.

“The NSE is contesting the disgorgement amount as it seems to be calculated wrongly. Secondly, disgorgement typically happens in case of fraud. However, in all the orders, the NSE has not been charged for committing fraud," a person familiar with the exchange’s thinking said, requesting anonymity. A lawyer who is directly involved in the matter, however said that the orders have been carefully drafted to ensure that the charges that could not be proved have been dropped and the ones which were good in law have survived. “Sebi could have easily bunched up all the orders together, but it was careful in keeping the matters separate to ensure proper accountability of employees. In case of dark fibre all the employees who were involved in decision-making have been charged, in others Sebi has asked the exchange to take action against the employees."

A Mint article on 2 May pointed out that based on Sebi analysis, the disgorgement on the NSE should be only 350 crore.

“The Sebi orders have far-reaching repercussions and penalties imposed may not necessarily be commensurate to the wrong done, particularly where the fraud has not been proven but lack of diligence has been cited. Disgorgement order involving such high sums, in absence of established fraud and non-identification of sufferers may put a strong challenge to the regulator’s legal stance," said Tejesh Chitlangi, senior partner, IC Universal Legal.

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