It is disappointing, to say the least, that yet another board meeting of the Securities Exchange Board of India (SEBI) should conclude without any updates to the investing public about the findings of investigative agencies, identity of perpetrators or precise nature of enforcement actions in the NSE co-location case. Though the issue was said to be on top of regulator’s agenda for its June 21 board meeting, the official press release makes no mention of it while discussing other less consequential decisions in much detail. In subsequent press interactions, SEBI stated blandly that ‘action will be taken’ against ‘institutions and individuals’.

It has been a good four-and-a-half years since the whistleblower complaint about select brokers gaining an unfair trading advantage on NSE’s co-location facilities came to light. Since then, investigations by independent agencies have established beyond doubt that brokers did gain preferential access to the NSE’s co-location servers and data, possibly in collusion with NSE insiders. Post-facto, NSE has seen a couple of high-level resignations and has improved its data dissemination process. SEBI too has sequestered the bourses’ colo revenues, issued show cause to 13 unnamed entities and required the free sharing of tick-by-tick data by the exchanges. But while such remedial measures may prevent the recurrence of a scam, they do nothing to reassure the investing public that SEBI has a zero-tolerance policy towards those who aid and abet market manipulation while occupying positions of power within the all-powerful Market Infrastructure Institutions (MIIs). NSE controls the lion’s share of trading in Indian equities and is supposed to be the frontline regulator enforcing material disclosure norms on listed entities. Thus, the possibility of bad apples within the bourse colluding with market players calls into question the very integrity of the securities market. Matters have been further muddied by a CBI investigation this year naming SEBI officials as complicit in this issue. This makes it even more imperative for SEBI to officially discuss the way forward on this controversy.

This issue apart, it is good to see SEBI adopting some of the recommendations of the R Gandhi committee to tighten the MIIs’ governance structure. To pre-empt concentration, the shareholding of eligible entities has been capped at 15 per cent both in Depositories and Clearing Corporations, with the concept of a Sponsor for a depository done away with. To prevent the capture of top management in MIIs by select individuals, a 50 per cent representation has been mandated for Public Interest Directors with a cap on their terms. The tenure of Managing Directors has been restricted to two terms, with a fresh appointment process at the end of the first one. But, ultimately, more than such rules, it is SEBI’s willingness to act against errant officials within itself and in the MIIs which will convince investors that when it comes to malpractices, it will dispense justice with an even hand even if it involves the high and mighty.

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