MCA may probe NSE case if Sebi makes reference

Ministry of Corporate Affairs (MCA) will probe National Stock Exchange (NSE) in the co-location case only after markets regulator Securities and Exchange Board of India (Sebi) makes a reference to it, a senior government official said.

According to the people privy to the development, it would not be appropriate for the MCA to get into the case when a regulator is deeply involved.

Sebi recently passed a few orders against the NSE and some of its employees for granting unfair access of data feeds to certain brokers in the co-location case. 

Co-location refers to a system where traders are allowed to place servers in close proximity to those of an exchange, helping faster execution of trades.

In the NSE co-location case, a few traders reportedly benefited from a differential treatment given to them as some NSE officials allegedly indulged in wrong practices, resulting in undue gains to the traders.

“As Sebi is already probing the case, we would not like to get into it at this stage. We will take a call later,” said the official.

The role of the government will be under Companies Act, 2013. Fraud and public interest are the two main issues for which it could be investigated as per the provisions of the Act. 

“In case Sebi refers it to us, we may look into the case under Companies Act. If they feel that we should step in at the right time, we will certainly look at that. But I don’t think, the time is right for us to get into it on our own,” the official said, adding that the government was fine with the market regulator investigating the case and would like to wait.

The government also feels that shutting one of the country’s two stock exchanges would not be an appropriate situation. 

“There are only two exchanges in the country. It won’t work if we shut one of them. There should not be over regulation,” the official said.

Last month, the Sebi passed orders against the NSE and some of its current and former employees for the lapses at its co-location facility. 

The regulator has barred the exchange from raising funds from the market for next six months. Sebi has ordered the exchange to disgorge Rs 625 crore, along with an interest of 12% per annum from April 1, 2014.

The Sebi had ruled that NSE had failed in its duty to offer a level playing field for the subscribers of its data feed called Tick-By-Tick (TBT). The flaw in the architecture of the feed resulted in some brokers getting the information related to stock prices ahead of others.

While the bourse is likely to challenge the Sebi orders, the NSE officials and brokers indicted by the regulator in this case have managed to get an interim stay.

STAYING OUT

According to the people privy to the development, it would not be appropriate for the MCA to get into the case when a regulator is deeply involved