The NSE Co-Location Saga: All the Drama and What's Next

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NSE Co-Location Case

SMART WORLD - Yo, four years after SEBI put down the hammer on the National Stock Exchange of India and two of its former big wigs over a co-location scam, the Securities Appellate Tribunal (SAT) just gave the penalty the boot.

Here's the deal: NSE provided some brokers with faster access to stock data through the co-location setup, giving them an edge in order execution. The load balancer, meant to evenly distribute connections, was not working right, leading to unequal access for all market players. SEBI, the Indian market regulator, saw this as a violation of the equal access rule and slammed the NSE and the former bosses with a disgorgement order in 2019 for Rs 624.9 crore, along with interest and penalties.

SEBI has a ton of power and also hit the NSE and the former executives with more penalties. But the SAT was like, "Nah." The tribunal ruled that the NSE's failure to implement the load balancer properly wasn't a result of unethical behavior and therefore couldn't be grounds for disgorgement. The SAT also said that the former bosses, Ravi Narain and Chitra Ramkrishna, couldn't be held responsible for the mess since there was no evidence they profited from it. The SAT revoked the ban on the two from working with any listed company or market intermediary for five years, replacing it with the time they already served.

It's worth noting that the SAT has held this view on disgorgement since day one, when the concept was introduced in India. The SAT has always said that only those who make illegal or unethical gains can be asked to give up the money, even back in 2007 in the National Securities Depository Ltd vs SEBI case.

Interestingly, India's SAT is even more strict on disgorgement than the U.S. Supreme Court. In June 2020, the U.S. Supreme Court upheld the SEC's power to order disgorgement as a remedy, but said the funds must be paid back to the victims and can't go to the government. The SAT's stance on disgorgement has remained consistent for decades, and SEBI's order against the NSE…

The Securities Appellate Tribunal (SAT) recently set aside a large fine against the National Stock Exchange of India (NSE) and two of its former bosses, Ravi Narain and Chitra Ramkrishna. This is four years after the Securities and Exchange Board of India (SEBI) issued its largest and most historic fine against the NSE and its former leaders. The reason for the fine was due to the NSE's co-location facility, which gave certain brokers faster access to stock exchange data.

This led to faster order execution, which violated one of the main principles of the securities market, equal access for all participants. The issue was brought to light in 2015 by a whistleblower, and after various audits and inspections, SEBI issued a fine in 2019 for more than Rs. 1,000 crore ($135 million). SEBI also ordered Ravi Narain and Chitra Ramkrishna to pay back a portion of their salary during their time at the NSE.

In appeals against the fine, the SAT found that the NSE failed to implement proper measures, like load balancers, to ensure fair access to all trading members. However, the SAT held that these lapses could not be considered unethical acts, and as a result, a fine could be issued but not a disgorgement order. SEBI's order was thus set aside. The SAT also found that SEBI had not found any evidence that Ravi Narain and Chitra Ramkrishna had made any illegal profits or gains, and so the disgorgement order against them was also set aside. The SAT also reduced a five-year ban from association with listed companies, to the time already served by the two individuals.

India's SAT has been consistent in its stance on disgorgement orders and has taken a similar view even before the U.S. Supreme Court. In the past, the SAT has set aside disgorgement orders issued by SEBI in similar cases, and has urged the regulator to review its approach to cases. The SAT's stance on disgorgement has been consistent for decades and this recent case is no exception.

• NSE Co-Location Case
• Securities Appellate Tribunal
• National Stock Exchange of India
• Ravi Narain
• Chitra Ramkrishna
• Securities and Exchange Board of India
• Co-Location Saga
• Equal access rule
• Load balancer
• Disgorgement order
• Penalties
• Indian securities market
• U.S. Supreme Court
• SEC
• Whistleblower
• Fine
• Illegal profits
• Listed companies
• Consistent stance on disgorgement
• Historic fine
• Appeals against the fine

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