Clearing NSE IPO hurdles: National Stock Exchange offers Rs 1,388 crore to SEBI; aims to settle co-location and dark fibre cases

The National Stock Exchange (NSE) has submitted two applications to Sebi, proposing to settle the ongoing co-location and dark fibre cases with a combined payment of ₹1,388 crore, setting a record for the highest settlement amount offered by any organisation to date.This settlement, if accepted by the regulatory body, would clear the path for the public listing of India's biggest stock exchange, which has seen numerous postponements due to regulatory and legal complications. The exchange renewed its IPO efforts following Tuhin Kanta Pandey's appointment as Sebi chairman in February.According to documentation reviewed by ET, NSE has proposed payments of ₹1,165 crore and ₹223 crore to resolve the co-location and dark fibre matters, respectively.

A source familiar with the proceedings was quoted as saying, "The case can be settled as the people who had done the violations have all gone from the exchange."The origins of the co-location issue trace back to 2015, when a whistleblower informed Sebi about potential manipulation within NSE's trading infrastructure.The Securities and Exchange Board of India discovered that select brokers received privileged access to NSE's backup servers, enabling them to conduct trades more swiftly than their competitors.

SEBI's probe revealed that the exchange's tick-by-tick system was susceptible to exploitation, providing unfair advantages to users on less busy ports whilst disadvantaging numerous other members. The regulator issued multiple directives in April 2019 against NSE, its senior leadership at the time, OPG Securities, and various other entities.A ruling in 2019 saw SEBI impose penalties on 16 parties, including NSE and its former executives, for permitting an unauthorised vendor to install dark fibre used in high-frequency trading.

Dark fibre refers to unused optical fibre cables available for future leasing.NSE permitted Sampark Infotainment Pvt Ltd to establish dark fibre connections for Way2Wealth Brokers and GKN Securities in 2015. However, Sampark lacked both service vendor authorisation and Department of Telecommunications approval. NSE officials failed to verify Sampark's credentials before allowing fibre installation for these brokers.These rulings faced challenges at the Securities Appellate Tribunal, resulting in partial relief. Subsequently, SEBI contested the tribunal's verdict in the Supreme Court, where several cases remain unresolved.If the NSE and Sebi come to terms, all pending litigation at the Supreme Court shall be withdrawn.The settlement process provides an alternative to court proceedings, enabling parties involved in regulatory violations to resolve cases by paying a specified amount, without having to acknowledge or deny wrongdoing.In the previous year, NSE remitted Rs 643 crore to Sebi to resolve allegations regarding preferential access granted to select brokers for its trading platform.In addition to the co-location and dark fibre investigations, Sebi has expressed worries about NSE's technological framework, specifically regarding multiple system failures and their handling, alongside operational and governance issues. The bourse must address these regulatory concerns before receiving approval for its initial public offering.