MUMBAI: The Supreme Court has allowed the settlement between capital market regulator Securities and Exchange Board of India (SEBI) and the National Stock Exchange (NSE) in the long-running co-location and dark-fibre matters, bringing the exchange’s decade-old regulatory overhang to a close.
The relief comes as the NSE's nearly Rs 22,562 crore initial public offering (IPO) is open for subscription. The NSE IPO closes for subscription on Monday, September 21. On Friday, the IPO was fully subscribed.
As part of the settlement, NSE had paid Rs 1,491.21 crore under SEBI's consent mechanism. With the Supreme Court disposing of the pending proceedings and SEBI closing the related enforcement actions, the legal and regulatory uncertainty hanging over the exchange has been removed.
NSE has been planning to go public since 2016, when it filed its first Draft Red Herring Prospectus (DRHP). However, with the co-location investigation, SEBI did not clear the filing. In 2019, the regulator formally returned the DRHP and directed NSE to refile only after the regulatory matter was resolved.
The co-location dispute is a long-running regulatory case concerning whether some brokers received unfairly faster access to NSE’s trading data, giving them an advantage over other market participants.
There were allegations that NSE allowed brokers to place their trading servers inside or very close to the exchange’s data centre.
This reduced the time it took for orders and market data to travel between the broker and NSE. For high-frequency/algo traders, even a difference of a few microseconds can matter.
The main co-location case originated from a SEBI order passed in 2019, under which the regulator directed NSE to disgorge Rs 625 crore along with interest at 12 per cent per annum from April 1, 2014.
Sebi had alleged that NSE provided preferential connectivity to certain brokers to its tick-by-tick data dissemination servers at the co-location facility, which resulted in these brokers making substantial profits.
NSE challenged the regulator's order before the Securities Appellate Tribunal, which set aside SEBI's disgorgement order. SEBI subsequently approached the Supreme Court against the tribunal's decision. The settlement now concludes the long-standing controversy.