The Securities and Exchange Board of India (Sebi) is likely to restructure the panel that looks at consent applications to avoid a conflict of interest in the case of the National Stock Exchange (NSE).
The current high powered advisory committee (HPAC) consists of retired Bombay High Court judge Vijay C Daga, advocate Dharmishta N Raval, Deloitte chairman P R Ramesh and Reserve Bank of India ex-deputy governor Anand Sinha.
According to him, Sebi’s enforcement department has proposed to appoint the external members on board to hear the matter. The final decision will be taken by Sebi chairman.
The issue came to light after lawyer Raval requested Sebi to allow her to recuse from looking at the NSE consent plea, as she is also serving as an independent director at the exchange's board. Other two members Ramesh and Sinha face potential conflict. As for Ramesh, Deloitte did a forensic audit of NSE's co-location facility, establishing that its trading systems were prone to manipulation. Sinha is an independent director with IDFC Bank, currently advising NSE on its Initial Public Offer of equity; it also holds a stake in the exchange.
The regulator is yet to take a call on whether these two members should be kept away from the NSE matter. "Those with direct conflict would not be the part of the NSE consent decision," said the source. The Sebi rule requires at least at least three members for a quorum.
NSE on July 20 applied to Sebi for settling the co-location issue. According to regulations, the consent application has to be made within two months of being served a showcause notice (SCN) by the regulator. Sebi had served SCNs to NSE and 14 of its current and former key management personnel for alleged irregularities at the co-lo 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 replied to the SCN.
The consent process, an alternative dispute redressal mechanism, allows an alleged wrongdoer to settle a pending issue with Sebi by accepting penal action without admitting or denying the guilt. After an entity files for consent, the terms of settlement offered by the applicant are placed before Sebi's HPAC. The panel recommends on whether the application be accepted. Thereafter, a panel of two whole-time members of Sebi considers the recommendations and decides.
· Sebi may allow members to recuse in case of a potential conflict of interest
· Daval requested Sebi to recuse her from the NSE consent hearing
· Sebi looking at issue of conflict in case of Ramesh and Sinha
· Regulator plans to appoint new members on the panel to hear the NSE consent case
· Sebi rules requires atleast three members to form a quorum
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