Happy That NSE Has Been Exonerated Of Charges Of Fraud, Says CEO Vikram Limaye

The head of National Stock Exchange of India Ltd. is happy that the bourse was exonerated of allegations of fraud even as the regulator imposed a penalty and barred it from the securities market for six months for allowing preferential access to some high-frequency traders.

“The matter was pending for some time and it's important to at least have the understanding of what are the boundaries of the investigation, and its results,” Vikram Limaye, managing director and chief executive officer of NSE, said in an interview with BloombergQuint. “I'm happy that there is finality and conclusion.”

In the probe that stemmed from whistle-blower allegations, the Securities and Exchange Board of India didn't find sufficient evidence to conclude that NSE committed fraudulent and unfair trade practices. But it found that India's largest bourse didn't conduct enough diligence to ensure fair and equal access through its co-location service.

NSE's governing board will decide what to do next based on legal advice, Limaye said. The board, which meets this week, will discuss the order, he said. “We need to have more than one conversations, we have 45 days to decide on the future course of strategy, we don't have to take a decision in two days.”

‘Stiff' Penalty

The market regulator ordered it to pay close to Rs 1,100 crore, in two separate orders, within 45 days to SEBI's Investor Protection and Education Fund.

• Over Rs 1,000 crore in the co-location case—Rs 625-crore profit earned from the service between 2010-11 and 2013-14 along with interest.
• Rs 90 crore for allowing an unauthorised vendor to lay dark fibre for brokers.

“It is a stiff number I must admit and certainly much higher than one would have anticipated,” Limaye said. More so because SEBI's order does not say “we are guilty of any unfair and fraudulent trade practices in the colo situation”.

The regulator had earlier asked the exchange to transfer revenue it earns from co-location into a separate escrow till the probe was completed. “We have been transferring the amount on an ongoing basis,” Limaye said. “This was not restricted to the revenues from co-location between 2010 and 2014, it is still going on. We have so far transferred Rs 2,300-2,400 crore to this escrow account.”

Limaye said the NSE is waiting for legal advice to decide whether to continue with the segregation. The obvious assumption is that since there is an amount that needs to be paid, there is no reason to set aside anything beyond that needs to be paid, he said.

Derivatives Setback

One of the biggest setbacks for the exchange is that it has been barred from introducing new derivatives for six months. The NSE started offering commodity contracts since October, and the order would prevent it from expanding its portfolio in the segment.

“If we were to comply with this order, we will have to wait for six months before we introduce any products,” said Limaye. The exchange was in the process of introducing agricultural and non-agricultural products contracts.

But the SEBI order will not have any impact on the NSE-IFSC exchange at GIFT City in Gujarat, he said. “It [new exchange] relates to transitioning liquidity from existing Nifty Futures contract from SGX to GIFT City, which is a separate regulated exchange,” he said. “This order relates to the NSE and not the GIFT City Exchange.”

IPO Hopes Alive

There is reason to be optimistic. The order brings clarity on the pending initial public offer of the stock exchange. While it can't come out with the IPO for six months, the NSE can plan it after that since the order removes the uncertainty.

“Anyways the prospectus and preparations for the IPO will take six months or little longer. From that perspective, six months will not come in the way of any preparation plan for going public,” said Limaye. “It is a positive as six months is a very reasonable period to prepare for an IPO.”

Watch the full interview with Vikram Limaye here: