Description

SEBI settlement order addressing NSE violations including data outsourcing without proper contracts, unauthorized penalty waivers, and inadequate client code modification controls.

Summary

SEBI issued Settlement Order SO/PSD/2025-26/7354 against National Stock Exchange of India Limited (NSE) for violations identified during inspection for the period February 1, 2021 to March 31, 2022. NSE filed a suo-motu settlement application under Settlement Application Number 7354/2023, proposing to settle without admitting or denying the findings.

Key Points

  • NSE outsourced storage of media tapes containing historical trade data without legally binding written contracts
  • Internal committee had unauthorized authority to waive penalty amounts without proper MCSGFC approval
  • NSE shared confidential, price-sensitive information with NSE Data and Analytics Limited (NDAL) without proper agreements
  • System architecture enabled unpublished price-sensitive corporate announcements to reach NDAL clients before website publication
  • Client code modifications permitted between unrelated institutional clients without due diligence
  • No policy existed for defining brokers as frequent modifiers
  • Failed to formulate policy for reviewing error trades and frequency of such reviews

Regulatory Changes

The settlement order reinforces existing requirements under:

  • SEBI Circular SEBI/HO/MRD/DP/CIR/P/2017/101 (data outsourcing guidelines)
  • SEBI Circular SEBI/HO/MRD/DOP2DSA2/CIR/P/2019/13 (Member & Core SGF Committee terms)
  • SECC Regulations 2018
  • SEBI PIT Regulations 2015
  • Various SEBI circulars on client code modifications and error trade reviews

Compliance Requirements

  • Stock exchanges must have legally binding written contracts for all data outsourcing activities
  • Proper authorization required for penalty waivers through appropriate committees
  • Confidential information sharing requires proper legal agreements
  • Due diligence mandatory for client code modifications between unrelated parties
  • Policies required for frequent modifier identification and error trade reviews
  • Safeguarding of proprietary, member-related and market-sensitive information

Important Dates

  • Inspection Period: February 1, 2021 to March 31, 2022
  • Settlement Application Filed: 2023 (Application Number 7354/2023)
  • Settlement Order Date: July 31, 2025

Impact Assessment

This settlement order highlights critical operational and compliance failures at NSE, India’s largest stock exchange. The violations relate to data security, unauthorized information sharing, and inadequate internal controls. The settlement reinforces the importance of proper outsourcing agreements, committee governance, and due diligence procedures for market infrastructure institutions.

Impact Justification

Major settlement order against NSE for multiple serious violations including data security breaches and inadequate controls