The National Stock Exchange (NSE), India’s largest stock exchange by market share, has once again approached the Securities and Exchange Board of India (SEBI) to obtain a No Objection Certificate (NOC) for its much-anticipated initial public offering (IPO). The request, made through a formal letter dated March 28, highlights the exchange’s readiness to move forward with the listing process after addressing SEBI’s previous concerns.
The NSE first filed its draft red herring prospectus (DRHP) in December 2016, but the IPO has remained in limbo for over eight years due to regulatory and legal hurdles. This latest appeal is yet another attempt to secure SEBI’s green light after multiple previous requests in November 2019, twice in 2020, and again in August 2024.
The exchange’s letter, addressed to VS Sundarasan, Executive Director of SEBI’s Market Regulation Department, states:
“We hereby submit this request letter to SEBI for seeking NOC/permission to take further actions towards listing of shares of NSE, including filing the DRHP with SEBI.”
Highlights:
NSE has written to SEBI again for an NOC to proceed with its IPO.
The exchange has been trying to go public since December 2016.
NSE has responded to SEBI’s observations in its latest appeal.
Regulatory Concerns Over NSE’s Clearing Corporation Ownership
One of SEBI’s primary concerns regarding NSE’s IPO has been its ownership of the clearing corporation, NSE Clearing Ltd (NCL). Clearing corporations handle trade settlements and are expected to operate independently from stock exchanges, especially in an era of interoperability between exchanges. SEBI had previously pointed out that NSE’s majority stake in NCL could create a potential conflict of interest.
However, NSE has defended its position by stating that its shareholding in NCL complies with the existing regulatory framework. The exchange also cited the precedent set by other listed exchanges, such as BSE and MCX, which wholly own their clearing subsidiaries. NSE further argued that any future changes to the ownership structure of clearing corporations could be disclosed as risk factors in its IPO prospectus.
Additionally, NSE has pointed out that if the clearing corporation’s ownership is diversified, the exchange will no longer have to provide capital infusions to support it, which would ultimately strengthen NSE’s financial reserves.
Highlights:
SEBI has raised concerns about NSE’s ownership of its clearing corporation.
NSE insists that its stake in NCL is in compliance with current regulations.
The exchange believes diversifying NCL’s ownership would improve financial reserves.
Strengthening Technology Infrastructure to Address SEBI’s Concerns
Technology failures and outages in stock exchanges have been a major regulatory concern in recent years. SEBI had previously flagged issues related to NSE’s technology infrastructure, urging the exchange to enhance system resilience and ensure seamless trading operations.
In response, NSE has outlined a series of measures it has taken to fortify its technology framework. The exchange has emphasized that there have been no major outages in the past four years. Additionally, NSE has implemented 65 out of 82 recommendations suggested by McKinsey in 2022, while nine initiatives were dropped based on expert panel feedback. The remaining eight initiatives are currently being developed.
By taking proactive steps to strengthen its trading systems and prevent disruptions, NSE aims to assure SEBI that its technology infrastructure is robust enough to support its public listing.
Highlights:
SEBI has asked NSE to enhance its technology resilience.
NSE claims it has had no major outages in the last four years.
The exchange has implemented 65 of McKinsey’s 82 recommended initiatives.
Addressing Key Management Personnel (KMP) and Compliance Staffing
Another critical aspect that SEBI flagged in its previous communications was the adequacy of key management personnel (KMP) and the overall workforce at NSE. SEBI wanted to ensure that NSE had sufficient human resources dedicated to compliance, regulatory oversight, and risk management.
To address this, NSE has highlighted a significant expansion in its workforce. The exchange’s total employee count has increased from 1,115 in FY23 to 1,673 in FY25. Specifically, the number of staff in critical operations has risen from 332 to 590, while personnel in regulatory, compliance, risk management, and investor grievance-related roles have increased from 486 to 710 during the same period.
This expansion demonstrates NSE’s commitment to enhancing its governance structure and ensuring strong internal controls ahead of its potential IPO.
Highlights:
SEBI sought clarity on NSE’s key management personnel (KMP) and compliance staffing.
NSE’s total workforce has increased from 1,115 in FY23 to 1,673 in FY25.
Regulatory and compliance staff have grown significantly to address SEBI’s concerns.
Ongoing Legal Cases and Settlement Efforts
NSE has also faced legal and regulatory challenges, including the high-profile colocation case, which has been under investigation for several years. SEBI had expressed concerns about unresolved legal matters and their potential impact on NSE’s IPO.
In its latest communication, NSE has reiterated its intent to resolve all pending issues amicably through a settlement mechanism. The exchange has informed SEBI that its governing board has reaffirmed its commitment to settling all disputes. In August 2024, NSE had already sent a formal request to SEBI proposing a resolution for all outstanding matters, including those pending before judicial forums.
By proactively addressing these legal challenges, NSE aims to remove any remaining roadblocks that could delay its IPO further.
Highlights:
SEBI raised concerns about NSE’s unresolved legal matters.
NSE has expressed willingness to settle pending disputes amicably.
A formal proposal for settlement was sent to SEBI in August 2024.
Awaiting SEBI’s Response on the NOC Request
Despite NSE’s repeated attempts to secure SEBI’s approval, the regulator has yet to grant the much-needed NOC. SEBI had previously responded to NSE’s requests with observations on various issues, including ownership, technology, compliance, and legal matters.
As of now, SEBI has not framed final rules on the demerger of clearing corporations from exchanges, which remains a key regulatory uncertainty. Furthermore, SEBI has yet to comment on NSE’s latest communication.
Market participants and investors continue to closely watch the developments surrounding NSE’s IPO, which, if approved, would be one of the most significant stock market listings in India’s history.
Highlights:
NSE is still awaiting SEBI’s final decision on its NOC request.
SEBI has not yet finalized rules on the demerger of clearing corporations.
Market participants are keenly watching the outcome of NSE’s IPO approval process.
