The Securities and Exchange Board of India (Sebi) withdrew charges against the National Stock Exchange (NSE) and seven former officials in the co-location case on Friday, claiming a lack of evidence to back up the claims. The market regulator stated that, while there were certain failures at the NSE's colocation (colo) facility, there was no proof of "collusion" or "connivance" with stock broker OPG Securities, who had gained "unfair" access to the exchange's secondary server.

"It is held that due to the absence of sufficient material/evidence/ objective facts on record in this case, the test of 'preponderance of probability' fails to produce enough justification for the establishment of collusion/connivance between OPG and its directors with Noticees," Kamlesh Varshney, a full member of the court ruling. The ruling follows orders made by the Securities Appellate Tribunal (SAT) last year. The tribunal quashed Sebi's April 2019 order in the case and asked the market regulator to re-adjudicate the matter within four months. The deadline was eventually extended. The SAT had requested Sebi to review the amount of disgorgement and the charge of connivance.

The regulator's new order might put an end to one of the most contentious disputes in the capital market ecosystem, which had harmed the reputation of the country's leading bourse's former executives and stalled its aspirations to go public. Along with the NSE, Ramkrishna, Narain, and Subramanian, Sebi withdrew accusations against Ravindra Apte, Umesh Jain, Mahesh Soparkar, and Deviprasad Singh. In a separate 238-page decision, the regulator ordered OPG Securities to disgorge Rs 85 crore. Sebi has also imposed a six-month suspension on OPG, in addition to the five-year ban ordered by the regulator in April 2019.

The recomputed disgorgement sum is more than the Rs 15.57 crore that Sebi instructed the brokerage to disgorge in its 2019 judgment. The regulator determined that the brokerage gained an unfair advantage by having access to the exchange's secondary servers. While the regulator accepted that the NSE lacked a clear policy for using the colo facility and failed to monitor the secondary server, it found no evidence to substantiate the claim of cooperation with OPG.

Between June 2010 and March 2014, the NSE deployed so-called tick-by-tick (TBT) architecture at its colo facility. TBT disseminated data feed sequentially, giving preference to trading members (TM) that had connected first to the colo server. Taking advantage of the system, OPG Securities frequently obtained first access to the exchange system. The issue was brought to light by a whistleblower named Ken Fong who sent three complaint letters to Sebi in January, August, and October of 2015, following which the regulator initiated multiple probes and forensic audits into the matter. 

NSE’s colo facility, launched in 2009, allows traders and brokers to establish their IT servers within the premises of the bourse’s data centres in return for a fee. These participants can access the stock prices’ information faster, resulting in quicker trade execution. 

Between June 2010 and March 2014, the NSE implemented tick-by-tick (TBT) architecture at its colo facility. TBT distributed data feeds progressively, giving advantage to trading members (TM) who connected first to the colo server. Taking advantage of the mechanism, OPG Securities routinely gained early entry to the exchange. Ken Fong, a whistleblower, brought the issue to light by sending three complaint letters to Sebi in January, August, and October 2015, prompting the agency to launch various investigations and forensic audits into the situation. The NSE's colo facility, inaugurated in 2009, allows traders and brokers to set up their IT servers on the premises of the bourse's data centres for a fee.

These participants have speedier access to stock price information, which leads to faster transaction execution. In January 2023, SAT overturned Sebi's April 2019 ruling, which asked the exchange to disgorge Rs 625 crore plus 12% annual interest since 2014. The judges, however, ordered the NSE to deposit Rs 100 crore for a lack of due diligence. According to an earlier filing by the NSE, Sebi repaid Rs 300 crore to the exchange in response to a related Supreme Court order.