The National Stock Exchange (NSE) won a major relief from the Securities and Appellate Tribunal (SAT) on Monday as it was allowed to withdraw ₹6,085 crore from an escrow account that it had to deposit on orders from market regulator SEBI.
The money was linked to SEBI’s order in the co-location or algo trading scam. After SEBI found NSE guilty of various lapses in the co-location services that gave preferential access to a few brokers and traders, the regulator asked the exchange to deposit all its earnings from the specific segment in an escrow account. Monday’s SAT order was the outcome of NSE’s miscellaneous appeal.
NSE can use funds for business
SAT has now ordered the closure of the escrow account and asked NSE to deposit ₹420 crore in an interest bearing account. The rest of the money can be used by the exchange for other business purposes, lawyers in the know told Business Line .
It is still not clear if SEBI will appeal against the SAT order in the Supreme Court (SC), the sources said. SEBI had imposed a near ₹1,000 crore fine on NSE for various lapses in the co-location trading segment.
SEBI’s logic in asking the exchange to deposit all earnings from co-location in an escrow was that the exchange cannot keep the proceeds generated from any wrongdoing or lapses in services.
Darius Khambata and Somasekhar Sudaresan were representing NSE. They have argued that SEBI’s disgorgement order is not tenable since the regulator has actually exonerated NSE from the stringent charges of Prohibition of Fraudulent and Unfair Trade Practices. Charges under this section could have also led to criminal proceedings. NSE’s counsel told SAT that there was no case of fraud against NSE or collusion of employees with trading members in the co-location case.
The SAT further declared that it would be conducting a brief hearing on the co-location matter on June 11. The NSE has been keen to file for its initial public offering, for which it has to clear the hurdle of co-location hearing in SAT and even in SC if SEBI chooses to appeal.
Co-location is a special segment where brokers are allowed to place their trading servers in close proximity to NSE’s master order matching engine.
The exchange charges huge fees for such server rack space. It allows brokers faster trading than the rest of the market participants.