Madras HC Issues Notices To SEBI, MCA, CBI, SFIO, FIU, Enforcement Directorate In The NSE Co-Location Case

The Madras High Court has issued notices to the Securities & Exchange Board of India (SEBI), the Ministry of Corporate Affairs (MCA), the Central Bureau of Investigation (CBI), the Enforcement Directorate (ED) and the National Stock Exchange (NSE), in the NSE co-location case.

The Public Interest Litigation (PIL) was filed by the Chennai Financial Markets and Accountability (CFMA).

The high court has also issued notices to the Serious Fraud Investigation Office (SFIO) and the Financial Intelligence Unit (FIU) as well as directed them to respond to the notices on November 11.

The PIL stated that the NSE had violated the fundamental objective of trading and gave illegal preferential access to certain trade members to access NSE trade data at the cost of the entire securities market.

According to the PIL, SEBI did not take any effective steps to unearth the scam, which is “one of the biggest financial frauds ever taken place”.

The order copy dated September 27 also said that the PIL brought to the knowledge of the court that the third respondent, which is the CBI, filed its first investigation report bearing ‘Number RC AC1 2018 A0011’ only on May 28, 2018, and there appears to be slow progress in the probe.

The PIL stated that the terms of reference (TOR) for a SEBI approved auditor and NSE approved internal auditor for the data center and also the broker must be investigated to see if they were adequate to unearth illegalities or complicity and whether cognizance of all findings of these auditors was taken by the authorities.

The co-location case dates back to 2015 when a whistleblower wrote to SEBI alleging that NSE was giving a few high-frequency traders and brokers preferential access to its trading platform which benefited both parties at the cost of others.

The whistleblower had alleged that some trading member of NSE in collusion of employees or management of the exchange, including preferential treatment to certain trading members to obtain faster access to market trade data.