NSE Dark Fibre Case: SEBI Appeal Asks Why SAT Overlooked Key Issues
SEBI argues that NSE allowed an unauthorised service provider to access its network without proper credential verification.
(Source: NSE)
In an appeal filed by the Securities and Exchanges Board of India, the markets regulator has argued that an appellate tribunal did not consider key issues relating to the NSE dark fibre case.
In September 2023 the regulator had approached the Supreme Court challenging a ruling by the Securities Appellate Tribunal from August last year. The case was admitted in March and the latest hearing took place on October 17. No clear orders have been passed as yet, with the next hearing slotted for Wednesday.
NDTV Profit accessed a copy of the appeal filed by SEBI, which details the issues being raised.
Among the many legal questions raised, SEBI asks whether SAT erred by not recognising that NSE violated regulations by failing to ensure equal access for all trading members, regardless of how long the violation lasted.
SEBI also questions why SAT did not hold NSE accountable for not referencing its 2009 circular, which led to broker oversight.
Additionally, SEBI points out that NSE's failure to verify Sampark’s licensing allowed unfair advantages for Way2Wealth and GKN, which may have been fraudulent. The regulator asks if the SAT overlooked NSE’s neglect of Millennium's complaints while focusing on potential losses for the other two brokers.
SEBI questions whether directors of entities that gained unfair advantages should be barred from engaging with other listed companies to protect investor interests. It challenges the SAT's decision to downplay the severity of the offense by labeling it negligence despite evidence of market distortion.
Moreover, SEBI asks if the SAT recognised NSE’s negligence in allowing unauthorised connectivity while conducting arbitrary inspections.
Lastly, SEBI questions the SAT’s decision to quash disgorgement orders for trading members who gained advantages through improper practices, creating an uneven playing field.
Background of the Case:
SEBI argues that NSE allowed an unauthorised service provider to access its network without proper credential verification.
This provider allegedly installed fibre infrastructure which violated NSE policies, granting two trading members an unfair advantage through improved latency.
It is further mentioned that despite discovering the unauthorised status of the service provider, NSE took no action, allowing these trading members to continue benefiting from the illicit service while denying similar opportunities to others in the market.
SEBI contends that this preferential treatment is unjust and has filed this consolidated appeal in response to what it sees as an erroneous interpretation of the facts and legal provisions. Thus, the present civil appeal has been initiated.
This case involves two brokers, Way2Wealth and GKN Securities, who allegedly used an unauthorised service provider, Sampark, to set up a special data connection between the NSE and the BSE in 2015. This violated NSE's rules, which only allowed certain approved telecom providers.
Despite lacking the necessary licenses, Sampark allegedly provided these brokers with faster connectivity. When SEBI investigated, it issued orders against the brokers and NSE for allowing this practice.
The appellate tribunal found their actions negligent but not fraudulent. SAT reduced some penalties while maintaining restrictions on the brokers' operations.
