9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2019 (4) TMI 2135 - Board - SEBIOffence under SEBI Act - irregularities in respect of Co-location facility provided by National Stock Exchange of India Ltd. - unfair trade practices - Preferential Treatment of Stock Brokers by NSE - PFUTP Regulations, 2003 application - As alleged Way2Wealth Brokers Private Limited was permitted to avail of Point to Point ( P2P ) dark fiber connectivity from Sampark , a non-empanelled service provider and the P2P connectivity provided by Sampark conferred a latency advantage to W2W which resulted in substantial increase in its turnover during the period April-August, 2015 - HELD THAT - After having examined the various acts, omissions, expressions through email correspondences and the overall conduct of NSE in the entire matter which helped an unauthorized service provider to access to their Colo facility to lay dark fibre connectivity on behalf of two trading members so was to provide them with higher speed and lower latency that would helped them in trading in securities in a more efficient and profitable manner, it leaves no doubt that the Noticee has actively supported and helped W2W and GKN to gain faster access to the market data feeds by means of a irregular connectivity which was certainly a major inducement for the two trading members to engage Sampark and to circumvent all policies and guidelines so as to achieve their goals. I am therefore of the view that the actions and conducts of NSE appropriately fall into the inclusive definition of fraud under Regulation 2 (1) (c) of PFUTP Regulations, 2003. As a logical corollary to the aforesaid observation, I am of the opinion that NSE has conducted its business in a manner which involved unfair trade practice and also amounted to commission of deceit on its trading members who were discriminated against because of the fraudulent acts committed by it in allowing its own policy / circulars to be violated with the active connivance of its own officials, with Sampark, W2W and GKN. Sampark had actively colluded with W2W, and NSE to provide P2P connectivity in an unauthorized and irregular manner so as to help and induce them in their dealing in securities market. Similarly, being the COO of Sampark at the relevant part of time who was driving the business of Sampark and was actively engaged with W2W and GKN throughout the transactions with them and also with NSE, Prashant D Souza (Noticee No. 17) is equally culpable and liable for the actions and fraudulent conduct on the part of Sampark. Also while discussing the submissions of GKN and holding GKN as liable for violation of the provisions of SEBI Act, 1992 and PFUTP Regulations, 2003, as mentioned in the SCNs, hold the Noticees, who were the partners of GKN at the relevant point of time are equally liable for the violation of the provisions of SEBI Act, 1992 and PFUTP Regulations, 2003 as per the SCNs served upon them. Non executive directors - Since the company had a full time CEO to manage the day to day operations of the company, it can hardly be said that the non executive directors would be either aware of or having any role to play in the day-to-day decision making or operational activities of the company. There is nothing on record to suggest that these two Noticees were in any manner involved with the company's actions and decision with respect to engaging Sampark for P2P connectivity. Therefore, I am of the view that the allegations made against them in the SCN are not sustainable. The technology surrounding Colo facility, P2P connectivity and dissemination of market data feeds is one area where NSE has been freely deploying technology and setting its own regulatory norms for observance and compliance by its own intermediaries. The only cardinal principle that they ought to respect is that no market participant is discriminated against and no market participant is allowed to take undue advantage of its Colo facility and the integrity and sanctity of its facility is ensured at all points of time. As a Self Regulatory Organization (SRO), NSE issued its own circular and guidelines for accessing into its Colo facility by the trading members and therefore, it was its onerous duty to maintain the sanctity of its own regulatory norms without fail. However, the way Colo facility has been mis-managed and manipulated by certain trading members with the active connivance of an unauthorized service provider and the officials of NSE, as evident from the discussions and observations made by me in the earlier paragraphs of this order, shows NSE's apathy towards the principle of transparency, fairness and equity mandated by SEBI on them. Under the circumstances, the irregular acts, absence of due diligence, misrepresentation and false statements that have come to notice in this entire narrative of P2P connectivity involving Sampark have put a question mark on the corporate ethos and credibility of the exchange trading system. Such collusive irregularities cannot be allowed to be passed off as mere technical irregularities as has been postulated by NSE, W2W, GKN and other individual Noticees in their submissions. The roles played by all the Noticees as highlighted above have cumulatively resulted into not only a fraud on the trading platform of a recognised leading stock exchange but also have upset the very foundation of a securities market institution that is built upon faith and confidence of the investing public at large. With respect to the Noticees' objection to the invocation of provisions of PFUTP Regulations, 2003 against them on the ground that, dealing in securities is sine qua non to prove fraud under the PFUTP Regulations, 2003, have already observed in the beginning of this order that the definition of dealing in securities is inclusive definition and is not confined only to the acts of buying, selling or subscribing to securities. In the present case, the allegations levelled against the Noticees are in respect of P2P connectivity between NSE and BSE Colo. Such connectivity is for the purpose of making available the data which helps in dealing in securities through Algo trading, Direct Market Access (DMA) or Smart Order Routing (SOR). The acts alleged against the Noticees fall in the definition of dealing in securities and accordingly they can be charged with the violations of PFUTP Regulations, 2003. Similarly, as already discussed and held in the beginning of this order that Sampark and its Director (Noticee no. 16 and 17) are persons associated with securities market for the acts committed by them in connection with providing P2P connectivity to some stock brokers at NSE Colo facility to enable them to have lower latency in the matter of their trading in securities. It may be noted that the provisions of section 12A(c) of the SEBI Act, 1992 and regulation 3(d) of the PFUTP Regulations, 2003 prohibit engagement in any act, practice or course of business, in connection with issue or dealing in securities, in contravention of law. Similarly, Regulation 4(1) of the PFUTP Regulations, 2003 provides that no person shall indulge in a fraudulent or unfair trade practices in securities. In the instant case, we find that the acts, omissions and conduct of all the Noticees, as alleged in the SCNs, except for the acts of Noticee no.2, Noticee no.10 and Noticee no.11, are covered in the prohibitions prescribed under section 12A(c) of the SEBI Act, 1992 and regulation 3(d) and 4(1) of the PFUTP Regulations, 2003. In view of the aforesaid observations, I find no flaw with the allegations of violations of provisions of Section 12A (c) of SEBI Act 1992 read with relevant regulations of PFUTP Regulations, 2003 against the above stated Noticees. In addition to the violations as mentioned in para 69.11, (i) Noticee no. 1, by committing the aforesaid acts, has failed to ensure equal, unrestricted, transparent and fair access to all stock brokers and has thus violated regulation 41 of the SECC Regulations, 2012. (ii) Noticee no. 3, 4 5, by committing aforesaid acts, being key management personnel of a recognised stock exchange, have failed to abide by the Code of Ethics specified under Part B of Schedule II of SECC Regulations, 2012. (iii) Noticee no. 3, by committing aforesaid acts, has also failed to abide by Code of Conduct specified under Part A of Schedule II of SECC Regulations, 2012. (iv) Noticee no. 8 and 12, by indulging in the acts as narrated above, have violated the Code of Conduct for Stock Brokers, as provided under Schedule II of Stock Broker Regulations. SECC Regulations, 2012 has been repealed by Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 (hereinafter referred to as SECC Regulations, 2018 ). In terms of regulation 52(2) of SECC Regulations, 2018, notwithstanding such repeal, anything done or any action taken or purported to have been taken or contemplated under the repealed regulations and circulars before the commencement of these regulations shall be deemed to have been done or taken or commenced or contemplated under the corresponding provisions of SECC Regulations, 2018. Therefore, present proceedings in so far as violations of SECC Regulations, 2012 are concerned may be continued unaffected by such repeal. In this regard, to meet the ends of justice and in the fitness of things, deem it proper to direct NSE to deposit a reasonable portion of revenue earned by the Noticee through its Colo facility during the period from May 08, 2015 to September 10, 2015 (i.e. the period during which Sampark was permitted to provide P2P connectivity to Noticee no. 8 and Noticee no. 12) to the Investor Protection and Education Fund (hereinafter referred to IPEF ) of SEBI which would be utilised for the objectives of the IPEF. NSE (Noticee No.1) a) Noticee no. 1 is directed to deposit a sum of Rs. 62.58 Crores as determined at para 70.3 above along with interest calculated at the rate of 12% p.a. from September 11, 2015 till the actual date of payment, to IPEF of SEBI within 45 days from the date of this order. b) The Noticee no.1, on completion of every six months (by June 30th and December 31st ) for the next three years, shall get its network architecture and infrastructure in its Colo facility and its linkages to the trading infrastructure audited by an independent CISA/CISM qualified and CERT-IN empanelled auditor. The deficiencies/shortcomings observed therein and the corrective steps taken thereon, with the comments of the MD and CEO of the Noticee No.1 shall be submitted to SEBI after obtaining approval of its Governing Board within 60 days from June 30th and December 31st of the year starting from June 30, 2019. c) Noticee No.1 is directed to prepare a comprehensive documented policy which shall, inter alia, include Guidelines, Standard Operating Procedures and Protocols with respect to its Colo facility including the eligibility criteria for Telecom Service Providers, the norms to be observed by the Stock Brokers and other registered intermediaries. The said documented policy is directed to be issued to the market intermediaries under intimation to SEBI, within three months from the date of this order. d) Noticee No.1, is directed to submit to SEBI, a report duly certified by its MD and CEO and with the comments of its Governing Board certifying that the network architecture and connectivity at its Colo facility and its linkages to the trading infrastructure are in conformity with SEBI s regulatory norms to provide fair, equitable, transparent and non-discriminatory treatment to all the market intermediaries registered with the Noticee No. 1. Such report shall be submitted within 30 days after every six months (ending on June 30th and December 31st ) for the next three years. First such report shall be filed for the six months ending on June 30, 2019, by July 31, 2019 based on the existing system and practices, pending compliances to directions issued at b) and c) above. e) The Noticee no. 1 is directed not to introduce any new derivative product for next six months from the date of this order. Chitra Ramakrishna (Noticee No.3) f) Noticee No. 3 is directed that she shall not hold any position either directly or indirectly in the management and/or the Board of or be associated, directly or indirectly, with any Stock Exchange, Clearing Corporation, Depository recognized or registered by SEBI and/or any intermediary registered with SEBI or any of their related entities, for a period of 3 years. Further, Noticee No. 3 shall also not hold any position either directly or indirectly in or be associated, directly or indirectly, with a company listed in any of the stock exchanges recognized by SEBI for a period of 3 years. Subramanian Anand (Noticee No.4) g) Noticee No. 4 is directed that she shall not hold any position either directly or indirectly in the management and/or the Board of or be associated, directly or indirectly, with any Stock Exchange, Clearing Corporation, Depository recognized or registered by SEBI and/or any intermediary registered with SEBI or any of their related entities, for a period of 3 years. Further, Noticee No. 4 shall also not hold any position either directly or indirectly in or be associated, directly or indirectly, with a company listed in any of the stock exchanges recognized by SEBI for a period of 3 years. Ravi Varanasi (Noticee No.5) h) Noticee No. 5 shall not hold any position, either directly or indirectly in or be associated, directly or indirectly, with any Stock Exchange, Clearing Corporation, Depository recognized or registered by SEBI and/or in any intermediary registered with SEBI or any of their related entities, for a period of 2 years. Further, Noticee No. 5 shall also not hold any position either directly or indirectly in or be associated, directly or indirectly, with a company listed in any of the stock exchanges recognized by SEBI for a period of 3 years. Nagendra Kumar SRVS (Noticee No.6) i) Noticee No. 6 shall not hold any position, either directly or indirectly in or be associated, directly or indirectly, with any Stock Exchange, Clearing Corporation, Depository recognized or registered by SEBI and/or in any intermediary registered with SEBI or any of their related entities,for a period of 2 years. Deviprasad Singh (Noticee No.7) j) Noticee No. 7 shall not hold any position, either directly or indirectly in or be associated, directly or indirectly, with any Stock Exchange, Clearing Corporation, Depository recognized or registered by SEBI and/or in any intermediary registered with SEBI or any of their related entities, for a period of 2 years. Way2Wealth Brokers Private Limited (Noticee No.8) k) Noticee no. 8 is directed to deposit a sum of Rs. 15.34 Crores along with interest calculated at the rate of 12% p.a. from September 10, 2015 till the actual date of payment, to IPEF of SEBI within 45 days from the date of this order. l) Notice No. 8 is hereby directed not to accept / induct / enroll any new client for a period of 1 year from the date of this order. Further, Noticee No.8 shall not undertake any trades on any stock exchange recognized by SEBI on proprietary account for a period of 2 years. Shashibhusan, CEO of Way2Weath (Noticee No.9) m) Noticee No. 9 shall not hold any position, either directly or indirectly, in or be associated, directly or indirectly, with any Stock Exchange, Clearing Corporation, Depository recognized or registered by SEBI and/or in any intermediary registered with SEBI or any of their related entities, for a period of 2 years. GKN Securities, (Noticee No.12) n) Noticee no. 12 is directed to deposit a sum of Rs 4.9 Crores along with interest calculated at the rate of 12% p.a. from September 11, 2015 till the actual date of payment, to IPEF of SEBI within 45 days from the date of this order. o) Notice No. 12 is hereby directed not to accept / induct / enroll any new client for a period of 1 year from the date of this order. Further, Noticee No.12 shall not undertake any trades on any stock exchange recognized by SEBI on proprietary account for a period of 2 year. Sonali Gupta, Om Prakash Gupta and Rahul Gupta (Noticee No.13, Noticee No.14 and Noticee No. 15) p) Noticee No. 13, Noticee No. 14 and Noticee No. 15 shall not hold any position, either directly or indirectly, in or be associated, directly or indirectly, with any Stock Exchange, Clearing Corporation, Depository recognized or registered by SEBI and/or in any intermediary registered with SEBI for a period of 2 years. Sampark Infotainment Private Limited (Noticee No.16) and Prashant D Souza (Noticee No.17) q) Notice No. 16 and Noticee No. 17 are hereby directed not to offer, directly or indirectly, any new telecom services in any manner to any of the Stock Exchange, Clearing Corporation, Depository recognized or registered by SEBI and/or any intermediary registered with SEBI or their related entities, for a period of 2 years. r) Noticee No. 17 is hereby directed not to be associated with any telecom service provider, in any manner, providing services to any of the Stock Exchange, Clearing Corporation, Depository recognized or registered by SEBI and/or any intermediary registered with SEBI, or their related entities, for a period of 2 years. s) Amounts directed to be deposited as mentioned at para no. a), k) n) above, shall be deposited either by way of demand draft drawn in favour of Securities and Exchange Board of India , payable at Mumbai or by e-payment to SEBI account.
Issues Involved:
1. Non-transparent communication by NSE regarding changes to authorized service providers. 2. Preferential treatment of certain stock brokers by NSE. 3. Installation of MUX in NSE MMR without verifying licenses. 4. Latency advantage to W2W. 5. Continuation of Sampark connectivity by W2W and GKN. 6. Site inspection conducted for some brokers but not for W2W and GKN. 7. Arrangements facilitated by NSE between Sampark and Reliance. 8. Violations of SECC Regulations, 2012 and SEBI Circulars. 9. Collusion and fraud under PFUTP Regulations, 2003. Issue-Wise Detailed Analysis: 1. Non-transparent Communication by NSE: NSE amended its Circular dated August 31, 2009, through a website publication in October 2013, without issuing a formal circular or referring to the original circular. This led to confusion among brokers and even NSE's Colo support team was unaware of the changes. This mode of communication violated the principles of transparency and consistency, thereby breaching regulation 41 (2) of SECC Regulations, 2012, and Clause 3 of SEBI Circular CIR/MRD/DP/07/2015 dated May 13, 2015. 2. Preferential Treatment of Certain Stock Brokers by NSE: NSE allowed W2W and GKN to establish P2P connectivity through Sampark, an unauthorized service provider, while denying similar requests from other brokers like Millennium and Mansukh. This discriminatory approach violated regulation 41 (2) of SECC Regulations, 2012, and Clause 3 of SEBI Circular CIR/MRD/DP/07/2015 dated May 13, 2015. NSE's actions were inconsistent and unfair, leading to allegations of preferential treatment. 3. Installation of MUX in NSE MMR without Verifying Licenses: NSE permitted Sampark to install its MUX in NSE MMR without verifying its license, contrary to its policy. This lack of due diligence allowed an ineligible entity to provide services, violating SECC Regulations, 2012, and SEBI Circulars. 4. Latency Advantage to W2W: W2W arranged its cabling in the NSE Colo rack to gain lower latency compared to other brokers. This was supported by internal emails and statements. NSE failed to monitor and ensure fair access, resulting in a latency advantage for W2W, violating principles of fairness and equity. 5. Continuation of Sampark Connectivity by W2W and GKN: Despite discovering that Sampark lacked the requisite license, NSE allowed W2W and GKN to continue using Sampark's services. This decision was taken to avoid disruption, but it perpetuated the preferential treatment and violated SECC Regulations, 2012, and SEBI Circulars. 6. Site Inspection Conducted for Some Brokers but not for W2W and GKN: NSE conducted site inspections for brokers like Millennium, GRD, and SMC but waived this requirement for W2W and GKN. This inconsistent approach indicated preferential treatment and violated principles of fairness and transparency. 7. Arrangements Facilitated by NSE between Sampark and Reliance: NSE facilitated the arrangement between Sampark and Reliance to regularize Sampark's unauthorized connectivity. This action was seen as an attempt to legitimize an unauthorized activity, violating SECC Regulations, 2012, and SEBI Circulars. 8. Violations of SECC Regulations, 2012, and SEBI Circulars: NSE's actions, including non-transparent communication, preferential treatment, and failure to verify licenses, violated various provisions of SECC Regulations, 2012, SEBI Circulars, and recommendations of SMAC. 9. Collusion and Fraud under PFUTP Regulations, 2003: NSE, W2W, GKN, and Sampark were found to have engaged in collusion and fraudulent activities. Their actions, including unauthorized connectivity and preferential treatment, amounted to fraudulent and unfair trade practices, violating Section 12A(c) of the SEBI Act, 1992, and PFUTP Regulations, 2003. Conclusion and Directions: - NSE is directed to deposit Rs. 62.58 Crores to the IPEF of SEBI and undertake various corrective measures. - W2W and GKN are directed to deposit Rs. 15.34 Crores and Rs. 4.9 Crores, respectively, to the IPEF of SEBI. - Chitra Ramakrishna, Subramanian Anand, Ravi Varanasi, Nagendra Kumar, and Deviprasad Singh are barred from holding positions in stock exchanges and related entities for specified periods. - Sampark and Prashant D’Souza are barred from offering telecom services to stock exchanges and related entities for two years.
|
