NSE co-location case 'serious', may need refiling for IPO: Sebi

The National Stock Exchange (NSE) may have to re-file papers for its Rs 10,000-crore IPO after addressing issues related to alleged preferential access given to some brokers, watchdog Sebi's Chairman Ajay Tyagi today said, terming the co-location case as "a serious matter".

The leading stock exchange had submitted to Sebi its draft prospectus for the public offer in December, but the approval has been hanging fire due to issues surrounding the ongoing probe into the NSE co-location case where some brokers allegedly got preferential access to the exchange's systems.

A probe is under way to quantify any unlawful gains made by the brokers, allegedly in connivance with some NSE officials, due to this preferential access.

To a query on whether NSE will have to file a revised financial statements and DRHP, Tyagi said, "That is for them to decide... It is a serious matter. If I was an issuer, I will see that these are addressed and then only go back to DRHP."

Asked whether it is regulatory requirement to file a revised DRHP (Draft Red Herring Prospectus), the Sebi chief said, "I think they themselves will do it."

Tyagi was speaking to reporters on the sidelines of an event organised here by the Standing Conference of Public Enterprises (SCOPE).

In the high-profile NSE co-location case, Sebi wants its forensic audit to quantify unlawful gains made by some brokers, even as the exchange is trying to reach a settlement of the case through consent mechanism.

Regulatory sources had earlier said Sebi decided to get an independent forensic audit done to quantify the alleged unlawful gains as probes conducted by the NSE itself and through an exchange-appointed auditor have failed to answer some very important points.

The regulator will also engage with various shareholders of the exchange as well as the government and other major stakeholders in the capital market, given the enormity of the case.

The Securities and Exchange Board of India is looking to complete its probe at the earliest on the matter, which was first brought to its notice in 2015 by a whistleblower, but the investigation gathered pace only in recent months.

The case relates to some brokers allegedly getting preferential access through co-location facility at the NSE, early login and dark fibre, which can allow a trader a split- second faster access to data feed of an exchange.

Even a split-second faster access is considered to result in huge gains for a trader.

Pending investigations, Sebi has directed that all revenues emanating from co-location facility, including the transaction charges on the trades executed through such facility, be placed in a separate bank account.

Accordingly, the NSE has transferred Rs 375.51 crore to a separate account for September 2016 to March 2017. The regulator also wants to ascertain what component of this amount could have had an impact on the alleged preferential access to some brokers, sources said.

The probe is casting a shadow on the long-pending initial public offer of the exchange while it has already seen a flurry of top-to-medium level executive exits.

Sebi has recently issued 14 show-cause notices in the co-location case, including to the NSE.

In its notice, Sebi observed that the exchange did not co-operate with it or the forensic auditor appointed by the NSE on the regulator's direction. Also, the exchange failed to provide requisite information as sought by Sebi, the regulator said.