Now, Sebi faces CBI, FinMin in NSE case

“The Central Vigilance Commission (CVC), which examines the conduct of public sector and government officials, may also step in as a complaint is likely to be made soon," said a third person.

The examination comes just before the end of Sebi chairman Ajay Tyagi’s tenure on 28 February. He is eligible for a renewal.

“The finance ministry has sought a report from the market regulator on the NSE case, seeking to understand whether Sebi has exercised its full powers in the NSE investigation and subsequent order," said a person with direct knowledge of the matter. A query sent to the finance ministry and the Sebi spokesperson was not answered.

However, finance minister Nirmala Sitharaman, who was in Mumbai for a post-budget interaction with banks and financial institutions on Tuesday, said she had no comment to make on whether there was a need for additional correctional measures. “No view until we get to the bottom of it," she said. This comes even as CBI sleuths visited the Sebi headquarters on Monday to collect documents. “The Sebi office was visited to collect documentary evidence pertaining to the co-location case and the recent Sebi order that pointed at governance failure at the exchange," said an official with the agency.

The CBI’s case pertains to the so-called co-location scam where a few brokers wielded unfair advantage over others when they accessed NSE’s high-speed trading platform or algo trading and co-location platform. A case was registered in 2018 against OPG Securities Pvt. Ltd, a brokerage firm, and unnamed Sebi and NSE officials.

A query sent to Sebi was not answered. However, Sebi officials said on condition of anonymity that the exercise of ensuring that all NSE case files are in order is ongoing.

“In such multidisciplinary probes the first call of action is to ensure that all documents are maintained and supplied to outside enforcement agencies. The exercise is being driven at the top level," said an official with the regulator.

Sebi’s order on the hiring irregularities has come under criticism on two grounds. First, the fines and ban period are small compared with punitive actions in other cases. Second, the order failed to identify the unknown third person who was receiving data from Chitra Ramkrishna, NSE’s former chief. Ramkrishna was fined ₹3 crore and banned from being a part of any market intermediary for three years.

The regulator in its order passed on 11 February held that hiring Anand Subramanian, who had no relevant experience, and giving him powers equivalent to those of the managing director and chief executive officer may have significant impact on the functioning of the stock exchange.

In the same order, Sebi whole-time member Anant Baruah said the amount of disproportionate gain or unfair advantage made as a result of sharing information with an unknown third party and the hiring irregularity could not be quantified.

“Typically for such misdemeanours the regulator is known for levying a much higher quantum of penalties and much higher ban period at about 10-15 years if not declaring the individual as ‘not fit and proper’," said a senior counsel who represents Sebi in appeals against the regulator’s orders.

Sebi has powers under the Sebi Act for search, seizure, and to refer matters to investigative agencies for violation of laws that attract criminal proceedings. The order suggests that no such reference was made.

The Sebi official quoted earlier said the identity of the third person, a so-called Himalayan yogi, would have been relevant had Ramkrishna been passing on trading data. “NSE is still an unlisted company, so the leakage of information may not pass materiality threshold. Had trade data been passed, it would have been a different case as it could have benefited a few individuals. This is the reason Sebi has focused on governance lapses (at NSE)," this person said.