NSE IPO Clears Another Hurdle With Trading Access Point Case Settlement

National Stock Exchange's dream of an initial public offering approval are closer to reality with the markets regulator allowing it to settle the case of Trading Access Point.

In 2008, the NSE had introduced Trading Access Point, a system used by trading members to manage their connections with the exchange. It introduced alternatives like 'Trimmed TAP' in 2013 and 'Direct Connect' in 2016. TAP continued to be used until 2019 for equity trading and until 2020 for securities lending.

However, it was alleged that the exchange had failed to put in the appropriate remedial measures to prevent bypass of the TAP system.

After an investigation by the Securities and Exchange Board of India, a show cause notice was issued to 11 entities, including NSE employees and management, for alleged violation of regulations.

These included failing to prevent misuse of TAP, delays in addressing complaints about its deficiencies, and delaying the system’s discontinuation. Some violations related to cybersecurity measures, such as not appointing a chief information security officer on time and failing to implement encryption.

To resolve the case, the involved parties applied for a settlement with SEBI without admitting or denying the charges. After discussions, a settlement of Rs 643 crore, along with non-monetary terms, was agreed upon.

Apart from this, the biggest roadblock in the NSE IPO—the co-location case—was also recently dismissed by SEBI, without any directions, due to the lack of evidence against the exchange.

The co-location case involved individuals, such as Chitra Ramkrishna and Ravi Narain, who were among those at the helm of affairs when the alleged irregularities took place. These individuals, along with others, were scrutinised by the regulators as they investigated the matter, which centred on allegations of unfair access to the exchange's servers and systems.

The case began with SEBI's order dated April 30, 2019, which addressed issues related to NSE's co-location facility—a system that allows trading members to colocate their servers at the exchange data centre.

Right before this, the markets regulator had encouraged the exchange to file for a fresh no objection certificate in its process to get the approval, a reminder that NSE complied with in an expedited manner.

Interestingly, these developments started pouring in after a case to expedite the approval process was filed with the Delhi High Court.

The move came after SEBI informed the Delhi High Court about the absence of a new application from NSE.

The NSE had previously asked SEBI to reconsider its decision to block the IPO, in response to a petition from the People Activism Forum, which sought to accelerate the approval process.

NDTV Profit was previously told that the process of launching an IPO begins with the NSE requesting a No Objection Certificate. Once the NoC is obtained from SEBI, the company prepares the Draft Red Herring Prospectus, which includes vital information about its financial status and business model.

This DRHP is then filed with SEBI, which conducts a thorough review. After scrutiny, the markets regulator either approves the DRHP or requests further amendments. Once approval is secured, the company can proceed with its IPO, allowing it to raise funds from public investors.