SEBI was required to establish a ‘causal link’ in the co-location case against the NSE before imposing nearly ₹1,000 crore disgorgement against it; instead the regulator took a ‘casual approach’. This was the key argument made by Somasekhar Sundaresan, the counsel who argued on behalf of NSE in the Securities and Appellate Tribunal (SAT) on Wednesday.
Sundaresan’s main point was that SEBI has no clear assessment of ‘illegal’ gains made from co-location but has simply considered every penny from co-location as illegal and imposed the disgorgement.
Co-location is the proximity hosting of brokers’ servers close to NSE’s trading engine, which gives speedy order execution. A whistle-blower had highlighted that the exchange was giving preferential access to certain brokers in the co-location facility.
The basic purpose of disgorgement is to return the ‘illegal gains’ made in any scheme to investors who would have lost money due to the fraud. The point that NSE’s counsel was trying to make was that SEBI has failed to make any such assessment. Sundaresan has finished with his arguments and may respond if the SEBI counsel brings up any new argument.
SEBI’s simple case has been that since the system checks and balances at the co-location facility of the NSE failed, the exchange has to return all the profit or charges that it earned from co-location. NSE had launched co-location in 2009. This year, SEBI imposed strictures against the NSE and its executives for their role in the co-location case.
Another counsel PC Modi argued for Ravi Narain, former MD and CEO of NSE, and a few other NSE officials. Arguments with regard to SEBI’s action against Chitra Ramkrishna, former MD & CEO of NSE, will be heard on Thursday by SAT.