A Writ Petition filed in Madras High Court has prayed that the Court should declare directors, key management persons, employees and brokers of National Stock Exchange (NSE) involved in the co-location or algo trading scam, as 'not fit & proper'. The petition is also seeking probe of CB Bhave, the then Chairman of Securities and Exchange Board of India (SEBI) by Central Bureau of Investigation (CBI) for failing to take action in the case for three years.
In his petition filed against market regulator SEBI, A Kumar, an advocate says, "... (the) NSE has violated the fundamental objective of equal access to all market participants, by its co-location fraud where few brokers with vested interests have illegally benefited and the entire market was made to suffer.”
He goes on to argue that the NSE algo scam was a case of “market abuse by insiders with prior access through preferential information front running as well as committing fraud… Whereas all the investors, brokers and listed companies including public sector units (PSUs) believed that on NSE the price discovery was scientific and transparent and all the participants had equal opportunity to access the market, it was not true due to the fraudulent design of NSE co-location and also trading facility.”
The petition argues that “in national interest, prompt and strict action by SEBI against the unscrupulous personnel of NSE, the managing director and chief executive (MD & CEO), board of directors of NSE, and OPG Securities is required to restore public confidence and to protect the interest of the market participants and the public at large.”
It prays that “SEBI, without any further delay, should immediately declare the NSE directors, key management persons (KMPs), employees, brokers and others who are responsible for co-location fraud as not Fit & Proper person under the Securities Contracts (Regulation) Stock Exchanges and Clearing Corporations) Regulations, 2012 and the Securities Contracts (Regulation) Act, 1956."
Earlier cases of ‘Fit & Proper’
According to Mr Kumar, the petitioner, in the past SEBI had issued not 'Fit & Proper' order against various entities in the securities market. "...Similar or higher yardstick should be applied in this matter in public interest, as it involves collusion of brokers with Exchange staff to defraud the entire market running into more than trillions of rupees and shaking the investor confidence in securities market at large which has affected the national interest," he says.
In 2015, SEBI has declared Sahara India Investment Corporation (SIIC) as not fit & proper to run the mutual fund business, almost seven years after the Reserve Bank of India (RBI) had cancelled Sahara India Investment Corp (SIIC)'s registration to carry out the business of an non-banking finance company (NBFC). Besides, based on the Forward Market Commission (FMC)'s not fit & proper order against Financial Technologies India Ltd (FTIL) in 2013, in 2014 the SEBI had promptly declared FTIL as not fit & proper to hold shares in recognised stock exchanges, in view of maintaining investor protection, market integrity, transparency, fairness and governance in the securities market.
"Therefore," the petition says, "in parity and in all fairness the SEBI is obligated to take comparable stringent action against the NSE's then Board of Directors, MD & CEOs, KMPs, officers, associated entities and Mr Sanjay Gupta, owner and promoter of OPG Securities Pvt Ltd, by declaring them not 'fit & proper' to operate in the securities market, in order to ensure investor protection, market integrity, transparency, fairness and governance standard, apart from penalising and prosecuting them for fraudulent and unfair trade practices and permitting insider trading in the securities market in the national interest."
“Further, there has been conspiracy to conceal facts by NSE to the regulator and therefore a consent order by SEBI at this stage will not meet the ends of justice. In addition to declaring the perpetrators ‘not Fit and Proper’, the SEBI should punish and levy highest penalty for fraudulent and unfair trade practices carried on at NSE," the petition says.
Mr Kumar also requested the Court to direct CBI to investigate the role of Mr Bhave, the then chairman of SEBI and other members of SEBI, who failed to take any action for three years. "Further, there is every likelihood of high level political involvement in perpetrating the fraud which needs investigation by CBI," he says.
Mr Bhave was chairman of SEBI for three years beginning February 2008.
The petition alleges that the NSE had virtually created monopoly where the select brokers would never lose money by giving preferential access to few select brokers against the market at large. Requesting an intervention and probe by Competition Commission of India (CCI), the petition says, "As a result of such preferential access, the competition amongst the market participants was eliminated. CCI should look into the possible violations wherein the equal and fair access to all the market participants was defeated."
Last week, the HC had issued a notice to SEBI in response to the petition. While admitting a plea filed by Mr Kumar, the Court directed SEBI to respond to the notice in two weeks. The issue pertains to various offences, including alleged preferential access given by NSE employees to select stock brokers through co-location facility. (
Read: Madras HC Issues Notice to SEBI in NSE Algo Scam)
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