Market regulator Securities and Exchange Board of India (Sebi) has declined the National Stock Exchange’s (NSE) settlement application regarding the colocation case, according to sources familiar with the matter.
The NSE had applied for settlement under Sebi’s consent mechanism, which enables market participants to resolve alleged security market violations by paying a fee without admitting or denying guilt. However, Sebi rejected NSE’s consent plea and intends to issue a regulatory order against the exchange instead, as per the aforementioned sources.
The case revolves around alleged collusion between NSE officials and OPG Securities, one of the brokers accused of receiving preferential access to NSE’s servers, thus gaining an unfair advantage over other traders.
Emails sent to Sebi and NSE remained unanswered. In 2019, Sebi issued a series of orders in the colocation matter, which included accusations of collusion between NSE employees and OPG Securities. This order was contested by both NSE and OPG Securities in the Securities Appellate Tribunal (SAT). In January last year, SAT remanded the matter back to Sebi, instructing the regulator to reconsider the charge.
“After rejecting the consent plea, Sebi has proceeded with the procedure. Last week, Sebi provided NSE with a chance for a personal hearing in the matter and is expected to issue an order soon,” one of the sources mentioned. “SAT had noted that Sebi’s 2019 order lacked sufficient evidence to link NSE and OPG employees. However, Sebi maintains that there is enough evidence to establish a connection.”
The allegations against NSE include OPG Securities gaining access to Tick by Tick Data Feed (TBT) ahead of others, providing them with an unfair advantage. Despite being aware of this preferential access, NSE allegedly took no action against the broker.
Furthermore, there are allegations that NSE failed to implement load balancers, which would have ensured more transparent access to participants and reduced any special advantage enjoyed by OPG over others.
“The legal question revolves around whether NSE employees colluded with OPG or if it was a general failure of former exchange officials to take decisive action against OPG,” stated another source. “Allegations of collusion require substantial evidence, such as documents demonstrating financial transactions between the parties or evidence suggesting tampering of the system by NSE officials to favor OPG.”
OPG Securities, a Delhi-based broker promoted by Sanjay Gupta, is a key defendant in the colocation case. Sebi imposed a Rs 5 crore fine on the broker in 2019 for its involvement in the NSE colocation scam and barred its promoters from capital markets. In 2022, the CBI arrested Sanjay Gupta in connection with the colocation scam.
Sebi has issued numerous orders in the NSE colocation case, with each order addressing specific types of violations. Over the past year, SAT has overturned several of Sebi’s orders in the case, including the Rs 625 crore disgorgement imposed on NSE. Additionally, orders related to penalties imposed on former NSE employees have also been overturned by SAT.
