‘Algo manipulation’ case: NSE files for consent; experts call it premature

The NSE, under its new chief Vikram Limaye, filed a consent application with capital market regulator SEBI on Thursday.

The stock exchange is seeking to settle the alleged ‘algorithmic trading manipulation’ case via consent mechanism, wherein a securities market offender is let off after paying fine without admission or denial of guilt.

But market experts say it is too early for SEBI to think about settling NSE’s case via consent mechanism and the application is likely to be rejected at this stage pending further investigation.

“SEBI will review the application and get back to the NSE,” the exchange said in a release.

Facing flak from legal experts for its ad-hoc settlement of cases under consent, SEBI in 2012 had tightened the rules to exclude serious market manipulation cases, insider-trading and front-running among other offences from its consent terms.

“It would be pre-mature for SEBI to talk about consent terms in the matter as yet,” said JN Gupta, former Executive Director, SEBI. “SEBI is clear that nobody can be let off under consent unless investigation into the matter is complete and there is pending grievance by any of the affected parties against the alleged wrongdoer. Both of these are not clear in the public domain yet.”

To be fair to the exchange, while the NSE on its own may not have indulged in insider-trading or front-running, its alleged actions led some brokers to benefit at the cost of others.

Gupta is of the view that there is nothing in the consent terms which stops SEBI from taking any action in the larger interest of the securities market. “The NSE is a key market infrastructure institution and SEBI can act as per its wisdom,” he said.

But experts say the key question for SEBI would be to judge if individuals from the exchange or outside or brokerages and companies involved in the case can be let off as they too would demand the same treatment given to a major party in the case.

Another legal expert said that it was only fair to say that the new NSE chief was only exploring all possible ways to bring the case to a closure. Also, initiating consent by the NSE could be to adhere to the deadline to filing it, if that is what at the end is required to move on with the case.

The NSE so far has transferred ₹375 crore it may have earned from its co-location facility into a separate account from September 2016 to March 2017. But if SEBI moves towards consent it would have to consider the gains made by the exchange between 2010 and 2014 from its co-location and algo systems, when it is alleged that the ‘unfair access’ was provided.

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