Sources said Sebi had asked Narain to explain his stand on certain trading members and brokers getting preferential access to the NSE’s trading system when he was heading the exchange.
In the notice, Sebi has alleged violations under the Prohibition of Fraudulent and Unfair Trade Practice (FUTP) Regulations.
Sebi was concerned with Narain’s position on the NSE’s board as it amounted to a 'breach' of corporate governance norms, said sources.
“Narain’s resignation would help the NSE board take impartial decisions. It will also help achieve a faster closure to the case,” said a regulatory official.
The allegations of preferential access against the NSE are for the period between 2011 and 2014. Narain was managing director and chief executive officer until April 2013. He was succeeded by Chitra Ramkrishna.
Narain’s exit from the NSE comes six months after Ramkrishna quit her posts.
Sebi is said to have issued show-cause notices with different sets of queries to NSE officials. For instance, the top management has been asked to give replies on alleged violations of FUTP norms. Business development chief Ravi Varanasi, regulatory chief Suprabhat Lala, former technology heads Ravi Apte and Umesh Umesh Jain, former chief operating officer Subramanian Anand, and Ramkrishna are among those asked to explain FUTP violations.
Others have been queried over the trading system used by the exchange earlier and was found to be prone to manipulation. The NSE as an institution has been questioned by Sebi on the monitoring lapses.
Meanwhile, Sebi is watching the role of other independent directors, currently serving on the exchange’s board.
The regulator began probing the matter in early 2015 after it received at least three complaints, which had alleged that some brokers colluded with the NSE’s employees or outsourced staff to obtain information regarding loading and starting servers, including the back-up server.
According to Sebi, the complainant alleged that the NSE's system enabled first-to-connect stockbrokers to receive data ahead of others. The set-up in question was used for three years (2011-14). Later, the exchange moved to a new multicast system, under which data packets reached all participants at the same time.