The National Stock Exchange (NSE) has taken another shot at settling a regulatory investigation into the misuse of its Trading Access Point (TAP) software with revised terms of settlement.

NSE had filed settlement pleas with the Securities and Exchange Board of India (SEBI) in 2022 and 2023. The market watchdog returned the 2022 application against the backdrop of pending investigation.

NSE had received a show-cause notice from the regulator on the matter on February 28, 2023. The exchange filed a settlement application in response to the notice on April 28, submitting its grounds of consent without admission of liability or guilt and expressing its willingness to pay a fair sum in line with the settlement regulations. Following which, on July 10, the NSE filed a detailed reply to the notice.

Based on the settlement application filed by NSE and the employees, SEBI conducted several internal committee meetings with them. On March 5, 2024, NSE filed a Revised Settlement Terms (RST) with SEBI.

On May 24, the market regulator informed that its High Powered Advisory Committee on Settlement Orders and Compounding of Offences refused to accept the consolidated settlement offer, and directed the NSE to submit individual applications with RST. After getting board approval, on June 14, NSE filed an RST with SEBI for a settlement. The exchange is awaiting a response from SEBI on the same.

Details of the revised terms could not be ascertained. An email sent to NSE and SEBI did not get a response at the time of publication.

Co-location scam

In FY14, a new TAP software was rolled out by the exchange for co-location users. This was used to send orders from the member servers to the exchange and helped shave-off latency by 400 micro seconds to 100 micro seconds.

The alleged misuse of the software in 2013 was unearthed four years later by the income tax department during a probe into the co-location scam. The high-frequency traders manipulated TAP by using special software and even avoided paying the transaction fee to the NSE.

The co-location scam involved select brokers gaining unfair advantage by securing faster access to NSE’s data and trading facilities over others.

The market regulator had also directed that voting rights and all corporate actions with respect to the excess shareholding by NSE in National Securities Depository (NSDL) be frozen till the excess shareholding is divested. NSE holds a 24 per cent stake in NSDL, which had to be pared to 15 per cent by October 3 last year as per a regulatory diktat. It sought an extension from SEBI, which accepted the request.

NSE plans to reduce its stake to below 15 per cent by participating in NSDL’s offer for sale, foregoing corporate rights and dividends on excess holdings until compliant. The NSDL draft offer document, however, is yet to be cleared by Sebi pending clarifications sought by the regulator.

SEBI has issued a show cause notice to its subsidiary NSE Clearing (NCL) alleging non-compliance with interoperability norms pertaining to inter-CCP collateral. The NCL has taken remedial actions and filed a consent application with SEBI. On March 19 this year revised settlement terms were filed with the regulator.