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SEBI has imposed a penalty of ₹6 crore on the National Stock Exchange for picking up stakes in six entities, including CAMS and Power Exchange India Ltd, without obtaining the regulator’s approval. Apart from CAMS and Power Exchange India Ltd (PXIL), the NSE had acquired stakes in NSEIT, NSDL E-Governance Infrastructure Ltd (NSEIL), Market Simplified India Ltd (MSIL) and Receivables Exchange of India Ltd (RXIL).
SEBI said it found that NSE had engaged, directly and/or through its wholly-owned subsidiary NSICL, in activities that are unrelated/non-incidental to its activities as a stock exchange by way of acquisition of stakes in PXIL, CAMS, NSEIT Limited, NEIL, MSIL, and RXIL without seeking approval of SEBI”.
Through such acts, NSE has violated the provisions of Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) or SECC norms, SEBI said. Further, the exchange has failed to take corrective steps and have not furnished any material to suggest that it has applied for post-facto approval of SEBI about these investments, the regulator noted.
“NSE, being the leading regulated stock exchange in India, should have set higher standards of compliance which are found lacking in the present case,” the regulator said. It further said that the violation is repetitive in nature and has continued for a long period.
Fit and proper norm
According to SEBI, the importance of compliance with SECC norms is further evident from the fact that any irregularity, or misconduct in other business activities, “if done by the entity like noticee, may cost it dearly and it may lead to violation of the condition of grant of recognition to be a fit and proper person if that irregularity or the misconduct has a potential to affect the noticee’s general reputation, record of fairness and integrity”.
The regulator also said that each investment activities constitute an independent violation and as such there are six instances of violations and accordingly a penalty of Rs 6 crore has been imposed on NSE. Separately, SEBI disposed of a case of an alleged violation of SECC norms against NSE in the matter of NSE Strategic Investment Corporation Limited (NSIC).
It was alleged that the exchange had failed to obtain approval from SEBI for setting up its wholly-owned subsidiary NSIC and engaging in non-related or non-incidental activities in violation of SECC Regulations. As per the annual report of NSE, it was noted that NSIC was established as an investment holding company for the purpose of making or holding strategic investments in the equity shares and/or other securities of NSE group entities.
Pursuant to this, NSIC acquired 100 per cent stake of DotEx Company from NSE in 2013.
By this way, NSIC became immediate holding company and NSE as the ultimate holding company of DotEx. It is observed that incorporation of NSIC and acquisition of 100 per cent equity shares of DotEx Company from NSE were one-time and standalone events, SEBI said.
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