NSE fined Rs 6 cr for ‘unrelated activities’ without SEBI nod

Securities market regulator SEBI has found that the NSE had engaged in activities unrelated to its core activities as a stock exchange by acquiring stakes in several companies, including Power Exchange India Limited (PXIL) and Computer Age Management Systems Pvt Ltd (CAMS), and imposed a consolidated penalty of Rs 6 crore.

The SEBI order said that through an email dated July 5, 2018, it had directed the National Stock Exchange of India (NSE) to submit details with regard to stakes, shares and rights held by NSE or through its subsidiaries and the SEBI approvals in this regard.

In response, the NSE submitted requisite details through its email dated July 10,
2018 and October 30, 2019.

Regarding NSE’s reply on investment in PXIL, SEBI noted that the NSE contention that activities of PXIL are related to the activities of a stock exchange was not found acceptable as the activities of PXIL include providing electronic exchange for trading of power by its members — power generators, distribution utilities among others — and is entirely different from NSE, which is for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities as specified in Securities Contracts(Regulation) Act, 1956 that do not cover product as traded on PXIL. Also, the products traded on PXIL and NSE fall in different domain.

“Further, submission of NSE on ‘engaged’ in the activities of PXIL was also not found acceptable by SEBI as NSE is one of the promoter in PXIL and has acquired shareholding as well as nominated directors in the Board of PXIL through which it had engaged in the activities of PXIL,” the SEBI order said on Thursday.

Similarly, in the case of the stock exchange major holding shares in CAMS, the SEBI order said that the contention of NSE that activities of CAMS are related to the activities of a stock exchange was not found acceptable by SEBI as the activities of CAMS is that of a market intermediary and it provides back-end services to market participants.

The NSE acquired 45 per cent stake in CAMS in 2013 through its wholly-owned subsidiary NSICL.

Subsequently, the NSE diluted 7.50 per cent stake in CAMS as on September 6, 2018 and continued to hold 37.50 per cent thereafter.

The other companies with NSE investments examined by SEBI were NSEIT Ltd, NSDL E-Governance Infrastructure Ltd, Market Simplified India Ltd, and Receivables Exchange of India Ltd.

A SEBI order said: “In view of the above, it is concluded that the noticee (NSE) had engaged, directly and/or through its wholly-owned subsidiary NSICL, in activities that are unrelated/non-incidental to its activities as a stock exchange by way of acquisition of stake in PXIL, CAMS, NSEIT Limited, NEIL, MSIL, and RXIL without seeking approval of SEBI and thus, it has violated Regulation 38(2) of Stock Exchanges and Clearing Corporations (SECC) 2018 read with Regulation 41(3) of SECC 2012.”

The order by Adjudicating Officer Amit Pradhan observed that each investment activities constitute an “independent violation” and as such there are six instances of violations of the provisions of Regulation 38(2) of SECC 2018 read with Regulation 41(3) of SECC 2012.

“In my view, the consolidated penalty amount of Rs 6,00,00,000 (Rs 6 crore Only) is commensurate with the violation of Regulation 38(2) of SECC 2018 read with R41(3) of SECC 2012 as committed by the noticee in this case,” the order said.

The NSE should pay the total amount of penalty within 45 days of receipt of this order, it added.

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