NSE offers Rs 1,388 crore to Sebi to settle co-location, dark fibre cases

The National Stock Exchange (NSE) has proposed a settlement of Rs 1,388 crore to the Securities and Exchange Board of India (Sebi) in an effort to resolve long-standing issues related to co-location and dark fibre. This marks the largest settlement proposal ever submitted to the capital markets regulator.

NSE has submitted two separate applications under Sebi’s settlement framework. If approved, this could help lift the regulatory uncertainty that has overshadowed the exchange’s long-delayed initial public offering (IPO).

A source, who did not wish to be named, told Business Today that NSE has won the legal cases, including those taken by Sebi to the Supreme Court, which did not grant any stay in Sebi's favour. 

"Despite this, NSE's decision to agree to a settlement is seen as a positive step towards resolution and closure of a saga that began nearly 15 years ago, around 2009," the source said.

The co-location case involves allegations of unfair access to NSE's trading systems for a few select brokers. These participants were reportedly allowed to place their servers closer to NSE’s core systems, reducing latency and gaining a speed advantage that proved decisive in high-frequency trading.

Parallel to this, the dark fibre issue pertains to the use of ultra-high-speed, dedicated communication lines. These connections may have further tilted the playing field by offering even faster access to trading systems, bypassing standard co-location norms.

It all came to light during the tenure of Ravi Narain as Managing Director of NSE. The first complaints surfaced in 2015, although many of the practices allegedly date back to 2009.

In the years that followed, multiple investigations were launched. Cases were filed by the Central Bureau of Investigation (CBI) and the Enforcement Directorate (ED). These criminal and financial probes, targeting individuals rather than the institution, are expected to continue independently of any regulatory settlements, said the Business Today source. 

Meanwhile, in February 2022, in a detailed order, Sebi exposed some governance failures at the very top. The capital markets regulator revealed details involving the NSE CEO Chitra Ramkrishna, who held office from 2017 to 2022. According to the findings, she had been allegedly taking strategic and operational instructions from an ‘invisible Himalayan yogi’, communicating over email and WhatsApp.

This revelation sparked widespread public debate about the credibility of NSE's leadership during this period. The CEO was barred from continuing in her role, and sEBI'S crackdown set the stage for institutional reform. Things are gradually returning to normal. 

NSE IPO

During the May 7 earnings call, NSE MD & CEO Ashishkumar Chauhan confirmed the exchange had responded to Sebi’s February 28 letter and formally requested the NOC required to initiate the IPO. 

The stock exchange initially filed its draft IPO papers with SEBI in 2016, targeting a 22 per cent stake sale to raise around Rs 10,000 crore. However, the plan was derailed by regulatory hurdles linked to the 2015 controversy. The plan gained momentum after Tuhin Kanta Pandey assumed charge as Sebi chairperson in February this year. 

Pandey recently indicated that there are no major hurdles remaining in NSE’s case, noting that the stock exchange and the regulator are in the process of resolving key issues.

“There are some legal settlements and other matters involved. A certain amount will need to be paid, and the related cases will have to be withdrawn,” he reportedly stated at the FE CFO Awards.