The exchange was asked to disgorge profits—of about  ₹62 crore, and which goes up to nearly  ₹90 crore including interest—made between May and September 2015. (Photo: Abhijit Bhatlekar/Mint)
The exchange was asked to disgorge profits—of about 62 crore, and which goes up to nearly 90 crore including interest—made between May and September 2015. (Photo: Abhijit Bhatlekar/Mint)

NSE officials found guilty in co-location case move SAT

  • The 3 officials have sought relief on grounds that Sebi order will affect their livelihoods
  • Sebi had passed directions against 16 entities for allegedly violating fair access norms

MUMBAI : Three senior officials of National Stock Exchange of India Ltd (NSE) who were at the receiving end of Securities and Exchange Board of India (Sebi) directions for violating Sebi norms in the so-called NSE co-location case have appealed in Securities Appellate Tribunal (SAT).

The officials, Ravi Varanasi, head of business development, Nagendra Kumar, head of membership department, and Deviprasad Singh, head of colocation support, were found guilty by Sebi on Tuesday in the so-called ‘dark-fibre issue’.

Sebi had found these three officials guilty of allowing a non-registered service provider, Sampark Infotech, to lay the so-called dark fibre cable in NSE premises.

Varanasi, Singh and Kumar have been barred by Sebi from holding positions or associating with securities market entities for two years.

In their appeals before SAT, the officials have sought interim relief on the grounds that the order will affect their livelihoods and jobs.

“The matter was mentioned today (Friday) for interim relief. The matter will come up for hearing on Monday. In the full petition they have argued on the entire Sebi order. They have contested that Sebi did not consider their representations and directions are not commensurate with the crime," said one person with direct knowledge of the court proceedings, requesting anonymity.

Sebi, in the 202-page order on Tuesday, had passed directions against 16 entities, including the NSE, for allegedly violating fair access norms and policies for authorized vendors of dark fibre. The exchange was asked to disgorge profits made between May and September 2015, which comes to about 62 crore. Including interest, it is nearly 90 crore.

This order was in addition to a larger one against the NSE for allegedly violating norms of fair access when brokers accessed its co-location and algorithmic trading platform. NSE has to disgorge nearly 1,200 crore for this violation.

Dark fibre, an unused fibre which can be leased and used later, provided connectivity between co-location facility between the NSE and the BSE. As such, there is nothing wrong with using this facility. However, the NSE had lapsed by allowing an unauthorized vendor to lay down the fibre, which was used by two brokerage firms—GKN Securities and Way2Wealth.

Co-location allows brokers to locate their severs in the exchange premise for faster access to data and exchange systems.

These two brokerage firms, along with OPG Securities, which was barred from accessing the capital markets for five years, besides a fine of 15.57 crore for securing unfair access to systems of NSE, have also appealed against the Sebi order.

The market regulator held that the two brokers violated the code of conduct for stock brokers while accessing the unauthorized dark fibre. They faced a ban of two years from the securities market. Way2Wealth also faced a penalty of 13.54 crore and GKN of 4.9 crore.

These firms sought interim relief for their current futures and options position. Sebi granted them partial relief by allowing them to close existing positions till 30 April or within two months (whichever is earlier), according to a Sebi order published on the regulator’s website. The firms also asked for a stay on the order pending final hearing against Sebi directions.

Mustafa Doctor, senior counsel, along with Law Point who were arguing for Sebi, objected on the plea for a stay.

As per the SAT website, the matter has been reserved for orders on Monday.