In a major relief for the National Stock Exchange (NSE), the Securities Appellate Tribunal (SAT) has allowed the Exchange to release Rs6,085 crore from the escrow account which the Exchange earned by providing co-location (Colo) facility. However, according to sources, there is a rider; NSE has to retain Rs420 crore in an interest-bearing account. SAT has also announced that it would be conducting a brief hearing on the Colo matter on 11th June. It is not immediately known if the Securities and Exchange Board of India (SEBI) will file an appeal against this order.
NSE had earlier sued SEBI to get access to Rs5,991 crore of its revenue which had been deposited into a separate account for over four years.
Sources say that SEBI did not make any strong arguments against the move. It is also learnt that there is a lot of pressure from NSE's foreign investors to wind up the algo scam and let the Exchange off. The Exchange has also been keen on its initial public offering (IPO) and wants to finish all the legal matters regarding the Colo scam.
The order copy is awaited and there has been no official confirmation yet from SEBI or NSE.
In September 2016, the capital and commodity market regulator SEBI had asked NSE to deposit income generated from providing co-location (Colo) facility into an escrow account. SEBI had found in their investigation that co-location (Colo) facility gave preferential access to some brokers due to which they made unlawful gain. Hence, SEBI had ordered NSE to keep all earnings from Colo in an escrow account.
However, in April 2019, SEBI said it did not have enough evidence the NSE committed a fraudulent and unfair trade practice but it had established that the Exchange did not exercise due diligence when putting in place the co-location (Colo) servers. SEBI also directed NSE to disgorge amount worth Rs624 crore and also imposed a penalty of Rs62 crore. NSE challenged this order at the SAT in June 2019 and SAT told NSE to deposit this amount with SEBI. However, hearing of this matter was not concluded So, NSE moved SAT to allow it to withdraw the amount from the account. NSE also wanted the Tribunal to pass an order discontinuing the need for the bourse to put its co-location (Colo) revenues into a different account.
What Is the NSE Colo Scam?
In January 2010, NSE started offering co-location (Colo) facility whereby members could place their servers in Exchange’s premises for a fee. The term 'co-location' means 'a set-up wherein the broker's computer is located in the same area as the stock exchange's server’. This allowed them faster access to the buy and sell orders being disseminated by the Exchange's trading engine. A market manipulation scam by NSE emerged where select players obtained market price information ahead of the rest of the market, enabling them to front run the rest of the market.
As details of the scam emerged, former managing director Chitra Ramkrishna was asked to quit. Other investigation agencies including Central Bureau of Investigation (CBI), Enforcement Directorate (ED) and Income Tax department also commenced probe into the matter.
Here is the order issued by SAT in this matter...