Inside NSE’s IPO: Major Roadblocks And Challenges Explained


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NSE has been in the spotlight lately, driven by a surge in its unlisted market valuations and fresh IPO buzz; Key things to know

NSE IPO

NSE IPO: The National Stock Exchange (NSE) of India has been in the spotlight lately, driven by a surge in its unlisted market valuations and fresh IPO buzz after recent comments by SEBI Chief Tuhin Kanta Pandey. NSE, the country’s premier stock exchange, has been actively seeking a ‘no-objection certificate’ from SEBI to finally move forward with its long-anticipated public listing.

Key Hurdles for the NSE IPO

Despite the optimism, NSE’s IPO faces several regulatory challenges. The Securities and Exchange Board of India (SEBI) has flagged multiple concerns, chief among them being the long-pending co-location case. SEBI has also expressed concerns over the exchange’s technology infrastructure, citing repeated technical glitches and how these were managed. Additionally, operational and governance issues remain unresolved.

The NSE Co-location Case

The controversy dates back to 2015, when a whistleblower alleged that certain traders, in collusion with NSE officials, violated co-location norms by securing preferential access to trading data, thereby enabling faster trades and unfair profits.

At the time, NSE used the tick-by-tick (TBT) server protocol, which investigation findings by SEBI’s Technical Advisory Committee (TAC) and Deloitte India suggested was vulnerable to misuse. The whistleblower claimed some brokers used specialized hardware to gain split-second early access to market data and that unauthorized fiber cables were laid by non-empanelled ISPs for select traders.

Multiple agencies—including SEBI, the Central Bureau of Investigation (CBI), and the Income-tax Department—are still probing the case and investigating the roles of NSE’s former and current officials as well as certain brokerages.

Other SEBI Concerns Around the IPO

Sebi also raised concerns about the technology infrastructure at NSE, particularly after several technical glitches at the exchange and how these were managed. The regulator also pressed NSE to tackle issues related to its key managerial personnel (KMP), having identified a significant pay gap between the managing director and other KMPs responsible for critical functions. Sebi wanted the exchange to review the ownership and economic structure of its clearing arm, as it believes that clearing arm, as it believes that clearing firms should operate independently from exchanges. The market regulator wants a full-fledged chairman on NSE board, as currently, public interest directors take turns to chair the board meeting.

Timeline of NSE’s IPO Efforts

NSE first approached SEBI for IPO approval on October 18, 2016, and filed its draft offer document in December that year. However, on May 31, 2017, SEBI asked NSE to pause, returning the offer document in 2019 and advising the exchange to refile only after resolving the co-location issue. NSE has since made multiple attempts to secure SEBI’s approval, with the latest request submitted on March 28 this year.

NSE’s Response and Remedial Measures

It has been written to Sebi, seeking resolution of all outstanding matters before it and other judicial bodies via the settlement process by paying an amount. It also communicated to Sebi its commitment to comply with all modifications in regulations concerning clearing corporations. Any potential changes in the rules governing clearing corporations will be disclosed under risk factors in the IPO offer document. It said it will also follow any future amendments related to KMP compensation as per Sebi regulations and will rectify any shortcomings identified in the future regarding its technology infrastructure.

Where Will NSE List?

As per SEBI rules, stock exchanges cannot list their own shares on their trading platforms to prevent conflicts of interest. Therefore, NSE would list its shares on a rival exchange, the BSE.

Surge in Unlisted Shares

NSE’s unlisted shares have been rallying in anticipation of the IPO. Avinash Gorakshakar, Head of Research at ProfitMart Securities, says NSE’s IPO could be the largest in Indian market history, adding: “NSE is a cash-rich business with significant growth potential, especially given India’s low capital market penetration.”

Globally, NSE is the world’s largest derivatives exchange and second in equity trade volumes. It’s also the fifth-largest stock exchange by market capitalization, surpassing major names like Bajaj Finance and Hindustan Unilever, making it one of India’s top 10 most valuable companies.

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Aparna Deb

Aparna Deb is a Subeditor and writes for the business vertical of News18.com. She has a nose for news that matters. She is inquisitive and curious about things. Among other things, financial markets, economy, a…Read More

Aparna Deb is a Subeditor and writes for the business vertical of News18.com. She has a nose for news that matters. She is inquisitive and curious about things. Among other things, financial markets, economy, a… Read More

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