Capital market regulator SEBI has approved the largest-ever settlement of ₹643 crore in the case that involved the National Stock Exchange, former NSE chief executive Vikram Limaye and former chief technology officer Umesh Jain, among others.
NSE and its former top executives were accused of not taking remedial measures to prevent or discourage certain high-frequency traders from misusing a technology, which gave them an unfair advantage over others.
In 2008, NSE deployed software application trading access point on the servers of trading members for managing their connections and messages of orders on the NSE trading system.
While NSE introduced ‘trimmed TAP’ in December 2013 and ‘direct connect’ in February 2016 as an alternative to TAP, it continued with TAP till September 2019 in the equity segment, said SEBI order.
Undue advantage
In 2013, in a complaint to SEBI, it was alleged that high-frequency traders manipulated the TAP software to gain an unfair advantage, including bypassing transaction fees and executing orders without detection.
NSE was alleged to have not taken remedial measures to prevent or discourage any possible bypass of TAP. Despite complaints, it was alleged that the deficiencies of the TAP system were not brought to the notice of NSE’s Standing Committee on Technology.
SEBI issued a show cause notice to NSE and its top executives including former top executives Limaye and Jain. While the proceedings were pending, the accused applied to settle the case without admitting or denying the findings.
The applications along with settlement terms were considered by a high-powered advisory committee, which recommended a combined settlement of ₹643 crore.
On September 25, SEBI was informed that NSE and the other accused had remitted the penalty amount. The accused (except NSE and Shenoy) also submitted an undertaking of pro bono community service (for common good) of at least 14 days. With this, SEBI disposed the investigation against NSE and the former top executives in the TAP misuse case.
Co-lo case
The misuse of TAP itself came to light in 2017 during an investigation into the co-location scam involving former NSE chiefs Chitra Ramkrishna and Ravi Narain.
Earlier, SEBI had directed NSE to disgorge ₹625 crore, which was later reduced to ₹100 crore by the Securities Appellate Tribunal. However, citing a lack of evidence SEBI closed proceedings in the co-location case against NSE and its officials last month.