Dark Fibre Case: SAT Overturns SEBI Penalties On NSE

The Securities Appellate Tribunal quashed on Thursday the penalties imposed by SEBI on the National Stock Exchange for allowing an unauthorised vendor to lay dark fibre that was used for high-frequency trading.

The Securities and Exchange Board of India probed allegations that Sampark Infotainment Pvt. provided unauthorised services related to dark-fiber connectivity to brokers at the NSE.

The charges included lack of transparency, preferential treatment to certain brokers, improper installation of network equipment. The penalties imposed by SEBI were challenged in appeals, and the appellate tribunal quashed some penalties.

The NSE faced two charges—delay in processing requests from members and providing inconsistent and contradictory information to SEBI.

The SAT observed that the charge related to delay in processing requests was not valid as the relevant circular did not apply and, even if it did, a slight delay would not warrant a penalty. It quashed the penalty of Rs 1 crore that was imposed for this violation.

On the second charge, the tribunal said the NSE's response that the policy of site visits started in May 2015 was not an intentional attempt to hide actions related to Sampark connectivity. The SAT found that there was no deliberate attempt to exclude information. Therefore, the penalty related to this charge was also quashed.

The tribunal said the entire controversy around Sampark's licence lasted for 24 days and it was "much ado about nothing".

Since the penalty issue had already been acknowledged, the SAT accepted SEBI's proposal, and suggested quantifying the penalty.

It acknowledged the lack of due diligence and negligence on the part of former NSE officials Ravi Varanasi, Deviprasad Singh and Nagendra Kumar. The SAT recommended a minimum penalty of Rs 5 lakh each on them for the alleged violation under the SEBI Act.