In a ruling that will have a far-reaching impact on India's largest stock exchange, the market regulator has prohibited NSE from accessing the securities market directly or indirectly for six months. This will delay the bourse's initial public offer (IPO).

As per the order, NSE cannot introduce any new derivative product for next six months from the date of this order.

In a 104-page order, Sebi has also asked to disgorge 25% of the salaries drawn by two former chief executive officers -- Ravi Narain and Chitra Ramkrishna. They have also been prohibited from "associating with a listed company or a Market Infrastructure Institution or any other market intermediary for a period of five years," said the market regulator.

The bourse "shall disgorge an amount of Rs 624.89 crore, along with interest calculated at the rate of 12% per annum from April 1, 2014, onwards to the Investor Protection and Education Fund (IPEF) created by Sebi," the order said.

"NSE has committed a fraudulent and unfair trade practice as contemplated under the Sebi (PFUTP) Regulations. It is established beyond doubt that NSE has not exercised the requisite due diligence while putting in place the Tick-by-Tick (TBT) architecture," G Mahalingam, whole-time member of Sebi, said in the order.

TBT is a data feed that provides information regarding every change in the order book on the NSE.

Sebi has also directed NSE to audit its systems at frequent intervals.

NSE spokesperson in a statement said, "NSE is in the process of examining Sebi Order passed today and will take appropriate steps as may be legally advised."

Experts, however, feel the Sebi order is a fair judgement.

Amit Tandon, founder and MD, Institutional Investor Advisory Services (IIAS), said: "My understanding is that the order points to a whole new world where misgovernance or wrongdoings by corporate will now attract severe punishment and heavy penalty."

The co-location case dates back to 2015 when a whistleblower wrote a letter to Sebi alleging that the NSE gave preferential access to few high-frequency traders and brokers to NSE's trading platform. The whistle-blower alleged that NSE's algo-trading and co-location system was being rigged, with the connivance of insiders, to ensure substantial profits to a set of brokers. Some brokers had figured out that the way to circumvent the system by becoming the first one to connect to the server and preferably a server, which was the fastest.

The NSE management had allegedly glossed over the issue and sacked those who were involved.

In the Sebi order, it was noted that NSE TBT architecture was "prone to market abuse thereby compromising market fairness and integrity", in that it provided quicker order dissemination to those who managed to log in early.

"That is, if one entity is ahead of the other while logging in the morning, it gets information ahead of the other throughout the day. Further, it is not important to be absolutely the first one to log in. It simply gives you a probabilistic advantage to log-in as early as possible," the order stated.

Mahalingam further noted that Narain and Ramkrishna had held the position of MD & CEO of NSE in succession during the relevant point of time, and having held the senior most position and being in charge of the affairs of the conduct of the stock exchange business, they cannot limit their roles to the non-technology issues of the exchange.

"Undisputedly, they were vested with the general and overall responsibility of ensuring the implementation of the principle of equal, fair and transparent access, as mandated under Regulation 41 of The SECC Regulations. I find that while implementing TBT dissemination architecture at NSE, the essence of "Fair and Equitable access" was not attempted to be imbibed into the various stages of implementation of the technology and only "safety and reliability" was taken into account," said Mahalingam.