Co-location Scam: SEBI Drops charges against NSE, Chitra Ramkrishna

The Securities and Exchange Board of India (SEBI) has dropped proceedings against former Chief Executive Officer (CEO) of the National Stock Exchange (NSE) Chitra Ramkrishna, former Vice Chairman Ravi Narain, former Group Operating Officer Anand Subramanian and four other former senior NSE executives in the co-location scam [Order in the matter of NSE and Others (Co-location)]..SEBI Whole Time Member Kamlesh C Varshney passed the order after it found insufficient evidence to substantiate the allegations of collusion and misconduct against NSE and its top brass. SEBI in its order emphasised that "there are no new evidences in the current proceeding" beyond a 2023 report from the Indian School of Business (ISB). It found that the available evidence did not meet the 'preponderance of probability' standard required to prove collusion or connivance between OPG Securities (OPG) and NSE officials. "Due to the absence of sufficient material/evidence/objective facts on record in this case, the test of ‘preponderance of probability’ fails to produce enough justification for establishment of collusion/connivance between OPG and its directors with Noticees," the Court said..This decision was rendered following a January 2023 ruling by the Securities Appellate Tribunal (SAT) which had overturned SEBI’s April 2019 order directing NSE to disgorge ₹625 crore. The co-location facility, introduced by NSE in 2009, allowed brokers to place their servers within NSE’s data centers for a fee, providing them with access to market data a fraction of a second before other participants.The controversy surfaced in 2015 when whistleblowers alerted SEBI to preferential access issues. The SEBI committee found that NSE’s data dissemination architecture was vulnerable to manipulation and market abuse, leading to investigations of 15 stockbrokers including OPG Securities.In 2019, SEBI directed NSE to disgorge ₹624.89 crore and imposed a six-month ban on accessing market. However, following NSE’s appeal, SAT reduced the disgorgement amount to ₹100 crore.SEBI had also directed OPG Securities to disgorge ₹15.75 crore with interest, but this directive was later set aside and the matter was remanded back to SEBI for reassessment.The SAT also instructed SEBI to re-evaluate the case within four months, focusing on recalculating the disgorgement amount, reassessing allegations of collusion, investigating claims of crowding out other market participants and determining penalties for any concealment or destruction of evidence..SEBI's mandate mainly included examining whether OPG and its directors had gained an unfair advantage through secondary server access or by crowding out other traders. SAT had previously ruled that simply logging into the primary server first did not confer an unfair advantage, thereby narrowing SEBI’s investigation scope.Subsequent to the SAT order, the market regulator issued fresh notices against NSE and others in May 2023. Throughout the proceedings, SEBI provided the noticees with access to documents and opportunities for cross-examination. .Despite these opportunities, it found no substantive evidence against NSE or its former executives. The exchange defended its co-location practices by explaining that the secondary server was intended solely as a backup in case of primary server failure and that any misuse was addressed through disciplinary actions against errant traders including those from OPG..Ramkrishna argued that the evidence did not support any allegations against her, either personally or professionally, and contended that the charges of ignorance and connivance were contradictory and reflected a lack of thorough consideration. Subramanian similarly argued that the show cause notice lacked specific evidence against him despite various reports. He said there was no concrete basis for the allegations.SEBI dismissed charges against NSE’s former executives and several other individuals, citing insufficient evidence of collusion..While it acknowledged that NSE lacked a detailed and defined policy for its co-location facility and failed to adequately monitor the use of the secondary server by traders, this according to the regulator did not substantiate claims of collusion or connivance involving OPG Securities (OPG) and its directors. Despite these findings, which were also highlighted in the 2023 Securities Appellate Tribunal (SAT) order, SEBI concluded that this lack of due diligence did not provide sufficient grounds to prove collusion between OPG and NSE officials.In a separate order, the SEBI also ordered OPG Securities to disgorge ₹85 crore and imposed a six-month trading ban in addition to the previously ordered five-year debarment..[Read Order]