We would like to share an important development regarding the long-pending NSE co-location matter.
HPAC recommends NSE’s settlement application
The Securities and Exchange Board of India (SEBI) is likely to approve NSE’s settlement application in the co-location case soon. According to sources, SEBI’s High-Powered Advisory Committee (HPAC) on settlements and compounding has recommended the exchange’s settlement application.
NSE had filed the settlement application with SEBI on June 20 last year, offering Rs 1,387.39 crore to resolve the matter. Sources in the legal fraternity now indicate that the final settlement amount recommended by HPAC could be around Rs 1,880 crore for the closure of the co-location and dark fibre cases.
This proposed amount is understood to include:
- Around Rs 1,200 crore towards disgorgement
- About Rs 380 crore towards interest
- The remaining amount under other settlement terms
HPAC is understood to have met on March 27 to review the matter and recommend the revised settlement figure.
Under SEBI’s settlement framework, the final amount is determined starting from a base penalty, with adjustments made for the severity of the case, timing of settlement, and past violations.
What happens next
Following the HPAC recommendation, the matter has now moved to the next stage of the process. The recommendation has been sent to a panel of two whole-time members (WTMs) of SEBI.
After their approval, a formal demand for the settlement amount will be issued to NSE. The WTM panel has the final authority to either accept or reject the settlement application.
Under the settlement mechanism, parties facing charges resolve the matter without admitting or denying guilt.
Once the settlement application is approved by the panel of whole-time members, SEBI and NSE are expected to jointly move an application before the Supreme Court to withdraw the pending case. If the apex court permits the withdrawal, the matter will stand closed.
An email query sent to SEBI on the issue did not receive any response till the time of publication. NSE declined to comment.
Background: What is the NSE co-location case
The NSE co-location and dark fibre case relates to allegations that certain brokers received preferential and faster access to market data, giving them an unfair advantage in trading.
The issue traces back to a 2015 whistle-blower complaint, which alleged that select entities gained early access to NSE’s tick-by-tick data feed through specific server connections and unauthorised vendors such as Sampark Infotainment.
The allegations raised serious concerns around:
- Market fairness
- Governance lapses
- Possible violation of SEBI’s SECC Regulations, 2012
SAT had granted major relief to NSE
NSE had received significant relief from the Securities Appellate Tribunal (SAT) in 2023.
SAT reduced SEBI’s disgorgement amount to Rs 100 crore, compared with SEBI’s earlier order of Rs 624.89 crore. SAT held that NSE could not be accused of “fraud” and that the matter amounted to human error, making SEBI’s penalty too harsh.
SEBI challenged the SAT order in the Supreme Court, where the matter remains pending.
Current legal status of the co-location matter
SEBI’s appeal is currently before the Supreme Court. In March 2023, the court also directed SEBI to give an interim refund of Rs 300 crore to NSE out of Rs 944 crore.
In the related dark fibre matter, disgorgement of Rs 62.58 crore and a Rs 7 crore penalty were also set aside by SAT in 2023. Appeals in that matter are pending before the Supreme Court as well.
In the governance matter, NSE withdrew its appeals and paid a Rs 1 crore penalty in July 2024.
IPO process has moved ahead after NoC
Separately, NSE’s IPO process has also moved forward.
On January 30 this year, SEBI issued a No Objection Certificate (NoC) for filing an IPO application. NSE is currently preparing its Draft Red Herring Prospectus (DRHP) and is expected to file it in the next 1-2 months.
As part of the proposed IPO structure, NSE is planning an Offer for Sale (OFS), with the size expected to be around Rs 23,000 crore. The exchange has already approached existing shareholders to seek their willingness to participate in the OFS.
Earlier settlement in the TAP case
In 2024, NSE paid a record Rs 643 crore to settle the trading access point (TAP) case.
TAP was introduced in 2008 and functioned as a software application on trading members’ servers to manage connections and orders to the NSE.
The allegations in that case were that high-frequency traders bypassed TAP security measures, enabling them to:
- Gain faster access to data
- Avoid transaction fees
SEBI had alleged that NSE failed to take adequate remedial measures, did not update its systems to include encryption, and did not properly report a 2013 complaint to its Standing Committee on Technology.
The settlement proceeds will be credited to the government fund
With the co-location matter now moving toward settlement, another record payment is likely to be made under SEBI’s settlement mechanism.
The settlement amount will be credited to the Consolidated Fund of India.
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