SEBI closes proceedings against NSE, others in co-location case; decision clears path for IPO

Market regulator Securities and Exchange Board of India (SEBI) has disposed proceedings against the National Stock Exchange (NSE) and its former officials, including ex-Vice Chairman Ravi Narain and former CEO Chitra Ramkrishna, in the alleged co-location case.

In an order released on September 13, SEBI said, "There is no dispute to the fact that NSE did not have a detailed defined policy for the use of Colo (co-location) facility. It even failed to monitor the use of the secondary server by TMs without having sufficient reason. The defence put forward by NSE about the issuance of welcome email in the form of ‘registration enablement mail’ at the time of providing Colo facility to TMs, can’t be said to be justifying its role as a first-level regulator."

"The issuance of guidelines without proper monitoring demonstrated a lack of due diligence," it added.

The regulator cited insufficient evidence for conclusion and closed the case without any direction. Earlier this year, SEBI had rejected a settlement application by the NSE in the co-location case.

The latest development can be seen as a boost to remove a major roadblock to NSE's much-awaited IPO plans from 2016, which were derailed following the co-location controversy.

Last month, the NSE restarted the process of its long pending public offering and applied for no-objection with the market regulator, according to reports. The exchange has reapplied for a ‘no-objection’ with India’s markets regulator for initial public offer, as per the reports.

India's largest stock exchange NSE reported a 39 percent year-on-year (YoY) increase in consolidated profit at Rs 2,567 crore in Q1FY25. Revenue from operations shot up 51 percent YoY to Rs 4,510 crore. On the trading volumes front, cash markets recorded an average daily traded volumes (ADTVs) of Rs 1,22,872 crore, up 110 percent YoY, while the equity futures reached an ADTV of Rs 2,09,279 crore, up 101 percent YoY. Equity options (premium value) ADTVs rose 33 percent YoY to Rs 71,957 crore.

NSE co-location case

The NSE co-location scam was a case involving brokers gaining an unfair advantage by accessing the National Stock Exchange of India's (NSE) systems, data, and trading facilities. The case began in 2015 and has involved several investigations. The scam was based on allegations that NSE officials allowed certain brokers to access the exchange's servers and data faster, which gave them an advantage over other traders.

It also alleged that the NSE had allowed non-empanelled Internet Service Providers (ISP) to lay fibre cables on its premises for a select set of traders who were reaping huge amounts of profits.

The SEBI investigation found that the NSE had violated several provisions of the SEBI Act and the Stock Exchanges and Clearing Corporations (SECC) Regulations. In 2019, SEBI passed an order directing the NSE to disgorge Rs 625 crore plus interest, and also imposed a penalty of Rs 1,000 crore on the exchange.

In 2023, the Supreme Court of India directed SEBI to refund Rs 300 crore to the NSE, which the exchange had deposited under disgorgement orders. However, the apex court refused to stay the Securities Appellate Tribunal's (SAT) order, which had struck down SEBI's disgorgement order, directing NSE to pay Rs 625 crore plus interest.