NSE's Rs 30,000 crore IPO faces questions after decade-long delay and options slowdown
Mumbai, July 7
The National Stock Exchange's proposed Rs 30,000 crore initial public offering, expected to be the largest share sale in Indian history, comes after a decade-long delay caused by the co-location controversy. Even as the exchange prepares to list, recent regulatory curbs on derivatives trading have weighed on its revenue, profitability and market share, raising fresh questions ahead of the long-awaited IPO, as per the Value Research report.
The roadblock stemmed from the co-location controversy between 2010 and 2014, when certain brokers connected first to a backup server inside NSE's data centre, allowing them to receive market data milliseconds ahead of others.
A forensic audit confirmed the pattern, and SEBI launched an investigation. With the regulatory case still unresolved when NSE filed its draft prospectus in 2016, the uncertainty was sufficient to stop the listing process, the report said.
The issue then moved through years of SEBI penalties, tribunal proceedings and the Supreme Court. The matter is now in its final phase, with NSE proposing a revised settlement of Rs 1,491 crore with SEBI, which is reportedly nearing resolution.
The return of Ashish Chauhan in 2022 played a significant role in reviving the IPO process. A member of NSE's founding team who later led BSE's 2017 listing, Chauhan helped restore regulatory credibility and put the exchange's long-delayed public issue back on track.
During the decade in which it remained unlisted, NSE expanded rapidly. Its revenue grew roughly nine times, while the composition of its income changed significantly. Transaction charges, which accounted for 49.5 per cent of total income in FY16, increased to 78.7 per cent by FY26, driven primarily by the rapid expansion of derivatives trading, especially options.
Options trading has become the exchange's biggest revenue generator, contributing roughly 60 per cent of operating revenue. However, the segment has also come under increasing regulatory scrutiny. According to SEBI's data, 91 per cent of futures and options retail traders incurred net losses in FY25, collectively losing about Rs 1.1 lakh crore.
To slow activity in the derivatives market, SEBI introduced several changes from 2024, including reducing seven weekly expiry events across both exchanges to one weekly index expiry, assigning NSE's Nifty expiry to Tuesday and BSE's Sensex expiry to Thursday. The regulator also increased contract sizes and imposed additional margins near expiry.
FY26 became the first full financial year in which NSE operated under the revised framework. Revenue from operations declined by about 3 per cent year-on-year, while adjusted profit after tax fell 17 per cent to Rs 9,101 crore from Rs 10,978 crore in FY25. During the same period, NSE's market share in equity options declined from 97 per cent in FY24 to 75 per cent in FY26.
The decline highlighted the exchange's dependence on options trading, with no other business segment large enough to offset the impact. The remaining 21 per cent of NSE's top line comes from data feeds, listing fees, index licensing and co-location charges, which are recurring, less volatile and continue to grow.
— IANS
Reader Comments
Interesting how the co-location controversy basically froze the IPO for a decade. The Rs 1,491 crore settlement with SEBI seems like a reasonable compromise after all these years. However, I'm concerned about their over-reliance on derivatives revenue - 78% from transaction charges, with options alone contributing 60% of operating revenue. That's a risky bet if regulators keep tightening.
My father used to talk about the co-location scandal, it was a big deal in trading circles. The fact that NSE grew revenue 9x while unlisted shows they have a solid business model. But the 17% profit drop in FY26 is worrying after the SEBI curbs. I wonder if the IPO valuation will be affected. The 21% recurring revenue from data feeds and licensing is good though.
As someone who has traded on NSE for years, I think the IPO is a great opportunity for investors who missed the BSE listing. But the timing isn't perfect - SEBI's restrictions on weekly expiries and increased margins are squeezing volumes. The market share dropping from 97% to 75% in options is huge. Diversification is key now, and hopefully Ashish Chauhan can steer them through this phase. The man knows how to list exchanges!
30,000 crore IPO - that's going to be a liquidity test for the market. While I appreciate the transparency about the co-location issue being resolved, the drop in profits and market share is a red flag. SEBI's actions might be good for retail investors who were losing money in options, but it's hurting NSE. The 91% loss figure is heartbreaking. Better to invest in SIPs than chase quick money in F&O. Good luck to the IPO!
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