National Stock Exchange (NSE) has paid Rs643 crore for itself and on behalf of nine others, including its former managing director and chief executive officer (MD&CEO) Vikram Limaye, has paid Rs643 crore to settle a case related to bypassing trading access point (TAP) system. Securities and Exchange Board of India (SEBI) also directed seven, excluding NSE and GM Shenoy, to undertake pro bono community service of at least 14 days during the current financial year.
According to the SEBI order, those who settled the TAP case include: Umesh Jain, GM Shenoy, both former chief technology officers (CTOs), Narayan Neelakantan, former chief information security officer (CISO), VR Narasimhan, former chief regulatory official (CRO), and other former key employees Kamala K, Nilesh Tinaikar, R Nandakumar and Mayur Sindhwad.
SEBI's investigation into the TAP architecture and network connectivity revealed that NSE did not take remedial measures to prevent or discourage any possible bypass of TAP. TAP was a software application deployed by NSE in 2008 on the servers of trading members (TMs) for managing connections and messages for orders and trades. TMs, registered with NSE, connected to TAP to establish communication with the NSE trading system. While NSE introduced 'trimmed TAP' in December 2013 and 'direct connect' in February 2016 as an alternative to TAP, it continued with TAP until September 2019 in the equity segment and till November 2020 in the securities lending and borrowing segment.
On 28 February 2023, SEBI issued a show-cause notice (SCN) to these 10.
While the proceedings were pending, these 10 entities filed applications for settling the proceedings initiated vide the SCN, without admitting or denying the findings of facts and conclusions of law, through a settlement order.
After attending four meetings with SEBI's internal committee (IC), these entities proposed revised settlement terms.
Their settlement applications, along with the revised settlement terms they proposed, were placed before SEBI's high-powered advisory committee (HPAC) during its meeting on 18 March 2024. The HPAC suggested that the internal committee of SEBI re-examine the calculation of the settlement amount to ensure that it aligns with the revenue generated and profits made through TAP subscriptions.
Further, the HPAC recommended that the internal committee also consider the imposition of non-monetary settlement terms. After that, these noticees attended the meeting with IC of SEBI on 24 May 2024 and filed their revised settlement terms on 14 June 2024.
The revised settlement terms were placed before the HPAC's meeting on 29 July 2024.
The HPAC recommended that in addition to the combined settlement amount of Rs643.05 crore, appropriate non-monetary settlement terms be recommended by the panel of whole time members (WTMs).
The panel of WTMs accepted the recommendations of the HPAC to settle the matter on composite payment by NSE for itself and other applicants for Rs643.05 crore. Further, the panel of WTMs says the settlement applications can be accepted if, in addition to the settlement amount, pro bono community service of at least 14 days during the current financial year was undertaken by all the applicants, except NSE and Mr Shenoy, as a non-monetary settlement term.
On 25 September 2024, NSE remitted Rs643.05 crore to SEBI.
In the settlement order, Ashwani Bhatia, WTM of SEBI, says, "In view of the acceptance of the settlement terms by the panel of WTMs and receipt of settlement amount and undertakings by SEBI, the proceedings initiated against the applicants vide the SCN dated 28 February 2023 are hereby disposed of, as per approved settlement terms and in terms of Section 15JB read with Section 19 of the SEBI Act and Regulation 23(1) of the Settlement Regulations 2018."
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