NSE Current Affairs - 2019

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SEBI bars NSE from securities market for 6 months: Co-Location Case

The Market regulator Securities and Exchange Board of India (SEBI) has barred National Stock Exchange (NSE) from accessing the securities market for six months and also imposed a fine of ₹1,000 crore on NSE in co-location case.

Co-Location Case

  • Co-location refers to system wherein a broker’s server is kept in the exchange premises to reduce latency (as it directly influences the amount of time trader takes to interact with market), or delay in computing terms, while executing trades.

 

  • In 2015, SEBI received complaints against NSE in which it was alleged that the system used by NSE to disseminate data through co-location facilities was partial, as it allowed users to get information before others and thereby created an information asymmetry between users.

SEBI’s verdict in Co-Location Case:

  • As inspected under the SEBI ‘Prohibition of Fraudulent and Unfair Trade Practices rules’ (PFUTP) Regulations, NSE was found guilty of committing fraudulent and unfair trade practice and it also did not exercised requisite due diligence while putting in place the TBT (tick-by-tick data feed) architecture, thus affecting market fairness.
  • SEBI has barred the NSE from accessing the securities market for six months as its actions.
  • It has fined NSE for almost ₹1,000 crore (i.e. ₹89 crore plus 12% interest) from 1 April 2014 for its alleged failure to exercise proper due diligence while offering co-location facility.
  • The disgorgement amount is required to deposited in Investor Protection and Education Fund (IPEF).
  • It also directed former and current top employees in the management of exchange to not hold any position in a stock exchange for a period of two to three years.

Note: NSE has the largest market share in equity segment and almost a monopoly in equity derivatives.

NSE, LSE inks MoU for dual listing of masala bonds

National Stock Exchange of India (NSE) and London Stock Exchange (LSE) have signed Memorandum of Understanding (MoU) to collaborate on creating dual listing route for masala bonds and foreign currency bonds of Indian issuers. Through approval of single listing document, issuer can obtain dual listing on LSE’s International Securities Market and NSE’s GIFT City. It will serve as potential precursor of further joint listings in future that could see foreign currency bonds in India also being able to list in London.

Masala bonds

Masala bonds are rupee-denominated bonds through which Indian entities can raise money from foreign markets in rupee and not in foreign currency. Basically, it is debt instruments used by corporates to raise money from foreign investors in local currency.

The issuance of rupee denominated bonds transfers risk associated with currency fluctuations to investors and not to the issuers. This is especially during depreciation of domestic currency and when borrowing is in foreign currency as company has to pay more while repaying its debt, or while servicing interest on such borrowings if the rupee weakened.

From the issuer’s perspective, masala bonds provides cheaper borrowings compared to raising funds in India besides helps in diversifying its sources of fund-raising. Besides, it also helps in internationalization of the rupee and in expansion of Indian bond markets. Its issuance in long term can help to check slide of rupee and also reduce current account deficit over time.

Significance of dual listing of masala bonds

It will extend access to wider base of global investors as well as domestic and regional investors registered on NSE’s International Exchange and NSE IFSC Limited in Gujarat International Finance Tech City. It will also enhance visibility, increase liquidity in secondary marketsand enhance efficiency of price discovery for masala bond issuers. It will also reduce cost of raising capital for all issuers and encourage participation of wider variety of issuers in masala bond market.