Dark fiber case: Sebi imposes sanction on NSE and securities brokers

The case concerns the alleged differential access granted to certain brokerage firms in the form of dark fiber to NSE, to connect across co-location facilities before other members

The Securities and Exchange Board of India (Sebi) has imposed a fine totaling Rs 44 crore on 18 entities, including National Stock Exchange (NSE), its business development officer Ravi Varanasi, former managing director and CEO Chitra Ramkrishna and his adviser Subramanian Anand with certain stock brokers in the dark fiber case.

Apart from NSE and its former officials, others penalized by Sebi are stockbrokers – Way2Wealth Brokers and GKN Securities – Sampark Infotainment and their respective employees.

The regulator imposed a fine of Rs 7 crore on NSE, Rs 5 crore each on Ramkrishna, Varanasi and Subramanian Anand, who was Group Operating Officer and adviser to MD Ramkrishna.

Furthermore, Sebi fined Rs 1 crore each on Nagendra Kumar SRVS and Deviprasad Singh. Additionally, Sebi fined Rs 6 crore on Way2Wealth Brokers, Rs 5 crore on GKN Securities and Rs 3 crore on Sampark Infotainment.

They were asked to pay the amount of the fine within 45 days, according to a Sebi order passed on Tuesday.

The case concerns the alleged differential access granted to certain brokerage firms in the form of dark fiber to NSE, to connect to co-location facilities before other members.

A dark fiber or unlit fiber, as it relates to network connectivity, refers to an already laid but unused or passive optical fiber, which is not connected to active electronics and has no other data passing through them that is available for use in fiber optic communication.

The regulator has launched an investigation into the transactions of several entities, for the period 2009 to 2016, relating to the provision of connectivity to certain securities dealers by NSE in a way that could be harmful to investors or the securities market movables.

In his order, Sebi found that Sampark had arranged the cabling in NSE’s colocation rack in such a way that certain brokers, Way2Wealth Brokers and GKN Securities, had lower latency than other commercial members connected to Sampark Multiplexer. Such unfair advantage available from some stockbrokers was in contradiction with various regulations.

In addition, NSE has been accused of giving preferential treatment to W2W and GKN and depriving it of other stockbrokers by facilitating the laying of cables for W2W (by Sampark) to provide a latency advantage to W2W compared to other stockbrokers.
Furthermore, the exchange was accused of allowing W2W and GKN to continue enjoying Sampark connectivity even after finding out that Sampark did not have the required license.

In his order, Sebi noted that Ravi Varanasi and Nagendra at the relevant time were responsible for operational activities related to the allocation of the Colo rack as well as the processing of Colo requests.

Deviprasad was the vice president of IT operations for NSE and the responsibility for verifying the eligibility of service providers fell to the Colo support team, which he led.

“W2W (Way2Wealth) and GKN, in collusion with NSE and Sampark employees, have made significant profits due to the unfair latency advantage available with them,” Sebi said in his 186-page order.

Others penalized by Sebi are – MR Shashibhushan (Rs 1 crore), Prashanth Dsouza (Rs 1.1 crore), Om Prakash Gupta (Rs 1.1 crore), Sonali Gupta (Rs 1.1 crore), Rahul Gupta (Rs 1.1 crore).

In addition, a fine of Rs 10 lakh each was imposed on Netaji Patil, Rima Srivastava, Parshant Mittal and Mohit Mutreja.

In February, the regulator penalized Ramkrishna, Subramanian and others in a case related to alleged breaches of stock exchange governance.

Sebi had fined Ramkrishna Rs 3 crore for alleged governance failures in a case related to Subramanian’s appointment as group operations director and adviser when she headed NSE as director general and CEO, as well as for sharing confidential company information with an unidentified person.

Besides penalizing Ramkrishna, Sebi had imposed a penalty on Ravi Narain, who was Ramkrishna’s predecessor.

(With agency contributions)

Dolores W. Simon