The National Stock Exchange of India Ltd (NSE) is reportedly offering a record Rs1,000 crore (about US$118mn—million) to market regulator Securities and Exchange Board of India (SEBI) to settle a long-running regulatory dispute, potentially clearing the path for the Exchange's long-awaited initial public offering (IPO),
Bloomberg says in a report citing sources familiar with the matter.
However, the situation is quite odd and lacks clarity. NSE has been indicating a cooperative stance and is prepared to comply fully with whatever course of action the regulator ultimately decides. The pending cases in question are those where NSE has already secured favourable judgements and it is SEBI that has filed appeals against the outcomes. As a result, unless SEBI formally withdraws these appeals, the path to any settlement or resolving the issues remains unclear.
The Rs1,000 crore offer, if accepted, would mark one of the largest settlement amounts in India’s capital markets and could pave the way for SEBI to issue a no-objection certificate, a critical requirement for NSE’s public listing.
People familiar with the development told Bloomberg that SEBI is inclined to accept the proposal, with a decision expected soon. They spoke on condition of anonymity due to the confidential nature of the discussions.
The roots of NSE’s regulatory troubles date back to 2015, when allegations emerged that certain high-frequency traders were unfairly advantaged through preferential access to NSE’s co-location servers — a system meant to ensure faster trade execution. The fallout led SEBI to stall NSE’s IPO plans in 2016 and subsequently barred the Exchange from capital markets for six months.
While the Exchange has maintained its global dominance as the world’s largest derivatives bourse by volume, the regulatory overhang has long delayed its debut on Indian stock markets.
The IPO proposal, one of the most anticipated in Indian capital markets, has been under SEBI's review due to concerns over compensation to key executives, technology governance and the NSE's control over its clearing corporation. “All outstanding issues will be resolved shortly,” Mr Pandey assured.
During NSE’s recent earnings call, managing director and chief executive officer (MD&CEO) Ashish Kumar Chauhan also acknowledged pending legal matters, the report from Bloomberg says.
NSE's recent efforts to clean the slate include a significant payment of Rs643 crore in October 2024 to settle a separate case linked to the controversial trading access point (TAP) system. The settlement covered the Exchange and nine of its former key officials, including ex-MD & CEO Vikram Limaye.
The TAP system, deployed by NSE since 2008, came under regulatory scrutiny after SEBI found the exchange failed to implement timely safeguards to prevent potential misuse of the architecture by trading members. According to SEBI’s investigation, NSE continued with TAP in some market segments until as late as 2020, despite launching alternative systems like ‘trimmed TAP’ in 2013 and ‘direct connect’ in 2016.
In August 2024, NSE sought fresh approval from SEBI to move forward with its IPO. This update, detailed in NSE's latest annual report, follows a series of regulatory challenges that have previously affected its listing efforts.
In its April 2019 order, SEBI had imposed a significant penalty on the Exchange amounting to over Rs1,000 crore with interest. Additionally, the regulator had barred NSE from raising funds through equity, debt, or other securities for six months. This restriction ended on 30 October 2019.
However, due to a significant reduction in the number of shares offered for sale, specifically by more than 50%, SEBI required NSE to file new offer documents. As a result, the draft red herring prospectus (DRHP) submitted earlier was returned. Subsequently, NSE approached SEBI again in 2022 but was instructed to hold off at that time.
Recent updates indicate that NSE has reignited its efforts to get listed. Despite the expiration of the previous restriction, NSE is still awaiting SEBI's response to its latest request. The Exchange has asked SEBI for a no-objection certificate to proceed with its IPO plans and to refile the DRHP. As stated in its annual report, "NSE has requested SEBI to convey its no-objection to enable it to proceed with its IPO plan and for filing the DRHP. Response from SEBI is awaited."
Meanwhile, despite regulatory headwinds, investor appetite for NSE remains strong. The Exchange, backed by marquee investors such as Life Insurance Corporation of India (LIC) and the Canada Pension Plan Investment Board, saw its private market valuation surge from US$36bn (billion) in September 2024 to US$50bn recently, Bloomberg reported.
US-based Drew Investments is reportedly raising a special purpose vehicle to invest in NSE shares priced between Rs1,550 and Rs1,700 apiece, reflecting continued optimism about the exchange's market prospects.
If SEBI accepts NSE's proposed Rs1,000 crore settlement, it could not only mark the resolution of a prolonged regulatory standoff but also open the door for one of India’s most anticipated public listings.
A spokesperson for NSE declined to comment on the Bloomberg news report. SEBI has yet to make an official statement.
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