NSE files consent application with Sebi to settle colocation issue

This will allow an entity to settle issue by accepting penal action without admitting/denying guilt

The National Stock Exchange (NSE) on Wednesday filed an application with the Securities and Exchange Board of India (Sebi) for settling the co-location (colo) issue under the consent mechanism.

"The application has been filed under the settlement regulations of Sebi. Sebi will review the application and get back to NSE on the future course of action. NSE will work with Sebi on early resolution of this matter," said the exchange in a release.

The deadline for filing consent application for NSE was to end in two days. According to Sebi regulations, the consent application has to be made within two months of being served a show cause notice (SCN) by the regulator.

On May 22, Sebi had served SCNs to NSE and 14 of its current and former key management personnel for alleged irregularities at its colo facility. The trading systems used by NSE at its colo facility were prone to manipulation, which allegedly gave preferential access to select brokers. NSE has already replied to the SCN issued by Sebi.

The consent process, an alternative dispute redressal mechanism, allows an alleged wrongdoer to settle a pending issue with Sebi by accepting a penal action without admitting or denying the guilt.

Sources said NSE has not put any settlement amount in the consent application. In its application, NSE has said it has strengthened its system and processes to avoid a repeat of similar instances, said a source.

After an entity files for consent, the terms of settlement offered by the applicant are placed before Sebi's high powered advisory committee (HPAC), which is headed by a retired high court judge and three other experts. After analysing all the facts and circumstances of the case, the HPAC makes its recommendations on whether the application be accepted. Thereafter, a panel of two whole time members of Sebi considers the recommendations and take a final decision.

The consent application also comes within days of Vikram Limaye taking charge as the managing director (MD) & chief executive officer (CEO) at NSE.

"Sebi will review our application and then agree to take it for consent. I would like this to end as soon as possible. But I can't come up with any timeline. I am sensitive to how the regulator thinks about these things. I don't want to second guess. Sebi will have to follow a due process," Limaye had told Business Standard on July 17, when he joined NSE.

So far, Sebi has disposed-off nearly 1,500 applications under the consent route. It has also rejected over 1,000 applications. Serious offences such as insider trading have been kept out of consent settlement.

The consent route is preferred by entities as it helps reduce adjudication time.