SEBI drops fraud charges, fines NSE, two ex-CEOs in co-location case

SEBI drops fraud charges, fines NSE, two ex-CEOs in co-location case

By Ranjani Raghavan

  • 11 Feb 2021
SEBI drops fraud charges, fines NSE, two ex-CEOs in co-location case
Credit: Reuters

The Securities Exchange Board of India (SEBI) has fined the National Stock Exchange (NSE) for failing to provide ‘fair and equitable’ information to traders under SEBI regulations and charged two of its former chief executive officers for ‘dereliction of duty’ in the NSE co-location case.  

The latest order drops the charge of fraud against the exchange and its former chief executive officers Chitra Ramakrishna and Ravi Narain. The order, however, levies a penalty of Rs 1 crore against the exchange and Rs 25 lakh each against the former CEOs. 

The case pertains to a whistleblower complaint dating back to January 2015 where it was alleged that a group of trading members were able to game the system unfairly and access trading data ahead of most others because of NSE’s Tick by Tick (TBT) data feed, which was transmitting algorithmic trading data sequentially instead of broadcasting it to everyone at the same time. 


The TBT system was therefore providing unfair access to those with faster servers and the whistleblower alleged that NSE was aware of the deficiencies in its technology infrastructure. 

This sparked off a multi-year enquiry led by the markets regulator against the exchange and several NSE executives, leading to the delay of the exchange’s proposed public offering. Initially, in 2019  SEBI barred the exchange and asked it to dis-gorge ill-gotten gains to the tune of over Rs 625 crore.  

Narain was asked to return 25% of his salary in 2010-11 to 2012-13 and Ramakrishna was  asked to return 25% of their salary from 2013-14. 


In its latest order issued late on Wednesday, however,  SEBI  says that it is unable to find any evidence of ‘fraud’ or any evidence ‘leading to the culpability of any specific employee of NSE’ or ‘the collusion or connivance from the side of NSE with any specific trading member’. 

Specifically, Amit Pradhan, the adjudicating officer who passed the order on behalf of SEBI said that the evidence laid out does not present  "knowing misrepresentation", or "active concealment", “false promise”, "representation made in a reckless and careless manner” or any of the  other charges that fall under the ambit of  SEBI’s Prevention of Fraud and Unfair Trade Practice (PFUTP) Regulations. 

As charges are dropped against the exchange, it also consequently cannot stand against Narain and Ramakrishna, Pradhan says in the order. 


Ramakrishna was the chief executive and MD at NSE from April 2013 to December 2016, when she resigned.

Narain was one of the founders who set up the exchange in 1993 and resigned from the post of the chief executive offiver in 2013 and later resigned from the board of NSE in 2017, amidst probes by the markets regulator. 

While dropping charges of fraud, the markets regulator has said that the exchange had failed to comply with the provisions of the SECC Regulations “in letter and spirit” while  two former chief executive officers Ravi Narain, and Chitra Ramakrishna were ‘vicariously liable for the acts of omissions/ commissions’ committed by the exchange. 


The order agrees that the  stock exchange failed to ensure a level playing field for trading members subscribing to its TBT (Tick by Tick) data feed system

Specifically, it charges the NSE with (i) failing to provide an equitable distribution of IPs to trading members across servers;  ( ii) for the absence of ‘load balancer’ which would have provided an equitable spread of the advantages and disadvantages arising out of the login rank fixed for the day; (iii) for the non-inclusion of a randomiser in the TBT data feed system and (iv) its failure to monitor frequent connections to the secondary server by many trading members. 

Many trading members were repeatedly using the secondary server (giving themselves an undue advantage) without any checks and balances and action on part of the exchange. 


It said the default is “grave” and the “gravity of the matter cannot be ignored”.  

“No lenient view should be taken and the case deserves imposition of monetary penalty” against the NSE, Narain and Ramakrishna, Pradhan said 

In their defence, Narain and Ramakrishna had pleaded that they were not familiar with the technology, an argument the markets regulator did not accept. 

Narain said that though he was the MD and chief executive officer only till March 2013, technology aspects had been delegated to  the Joint  Managing  Director  since  2009 and he had not been personally responsible for ‘day to day operations of the COLO system’. He also said in his submission that the whistleblower complaint came up in 2015 after he had retired in 2013. 

Ramakrishna argued that the new MTBT ( multicast TBT)  architecture and the technology had begun to replace the older system from May 2014 after she took charge as Managing Director and CEO, an indication that she was not beholden to the previous technology. 

“The persons responsible for the introduction and the implementation and the functioning of the TCP/IP TBT Architecture and the COLO Facility did not find anything amiss and raised no concern as regards the same, they would have otherwise no reason to escalate the same to their higher ups,” Ramakrishna argued. 

Pradhan, however, said that as executives held the senior most management positions in the NSE they cannot limit their roles to the non technology issues of the exchange.  

“The MD and CEO of a stock exchange cannot abdicate his/ her responsibility by citing limited knowledge in certain spheres of the business activities,” the order said. 

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