Chennai: The Madras High Court has admitted a Public Interest Litigation (PIL) filed by the Chennai Financial Markets and Accountability (CFMA) in the National Stock Exchange (NSE) co-location case and issued notices to the Securities and Exchange Board of India (Sebi), the Ministry of Corporate Affairs (MCA), the CBI, the Enforcement Directorate (ED) and the NSE.
It issued notices to the Serious Fraud Investigation Office (SFIO) and the Financial Intelligence Unit (FIU). The high court also directed the noticees to respond on 11 November.
The petition stated that the NSE violated the fundamental objective in the process, and thereby gave illegal preferential access to certain trade members to access NSE trade data at the cost of the entire securities market.
According to the PIL, Sebi did not take any effective steps to unearth the scam, "one of the biggest financial frauds ever taken place".
The order copy dated 27 September also said that the PIL brought to the knowledge of the court that the third respondent, the Central Bureau of Investigation (CBI), filed the first investigation report bearing "No.RC AC1 2018 A0011" on 28.05.2018, in relation to the NSE co-location scam, and there appeared to be a slow progress in the said investigation.
"We state that the NSE colo scam have tarnished the reputation of a major market infrastructure institution and severely challenged the integrity of the securities market. Millions of investors, mostly retail investors, would have suffered huge losses due to relatively delayed dissemination of order book data and in the absence of awareness that some select TM's were able to access the order book data ahead of them," the PIL said.
It further said that the terms of reference (TOR) for Sebi-approved auditor and the NSE approved internal auditor for the data centre and also the broker, OPG, must be investigated to see if they were adequate to unearth the illegalities and whether the cognizance of all the findings of these auditors was taken by the authorities.
"Surprisingly this was not done by the 1st respondent Sebi at all," it said. It also noted a slow progress in the CBI investigation the NSE co-location scam.
The PIL further said: "It is shocking that the 1st respondent (Sebi) had absolved the 7th respondent NSE and its officials of all allegations under the Sebi (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations, 2003 ("PFUTP Regulations") in the relevant SCNs."
"It is submitted that when there is a serious fraud and misdemeanors committed by the top officials of the NSE who were acting hand in glove with the TMs towards manipulating the market and providing unfair trade access, NSE cannot be allowed to go scot free."
The co-location case dates back to 2015 when a whistleblower wrote to Sebi alleging that the NSE was giving a few high-frequency traders and brokers preferential access to its trading platform, which benefited both the parties at the cost of others.
The whistleblower had alleged that some trading member of the NSE in collusion with employees or the management of the exchange gave preferential treatment to certain trading members to obtain faster access to market trade data.
This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed