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A long-standing impasse between India’s largest stock exchange and the market regulator regarding the exchange’s public listing appears to be nearing a resolution. The possibility of such a breakthrough has lifted investors’ mood, and sent unlisted shares of the exchange soaring in the grey market.

According to two people aware of ongoing discussions, the National Stock Exchange (NSE) may receive a no-objection certificate (NoC) from the Securities and Exchange Board of India (Sebi) for its initial public offering (IPO) within weeks, potentially ending years of litigation and regulatory deadlocks. 

Two options are being discussed, according to the two people cited above, who spoke on condition of anonymity. One: Sebi granting the NoC subject to additional disclosures in NSE’s draft red herring prospectus (DRHP) about the pending court cases. Two: an out-of-court settlement, under which NSE would agree to pay a fee in exchange for Sebi withdrawing the cases.

“Both options are on the table," the first person cited above said, adding that in case of the first option that requires additional disclosures in IPO papers, “this is standard practice in capital markets—investors are informed, and the risk is theirs to evaluate".

The second person added that discussions are also underway on a potential settlement fee amount for Sebi to withdraw the cases, especially those pertaining to the so-called ‘dark fibre’ matter.

The dark fibre case relates to allegations that certain high-frequency traders (HFTs) received unfair access to NSE’s co-location servers between 2010 and 2014, using faster ‘dark fibre’ connectivity—private communication lines that allowed them to place trades faster than others.

In April 2019, Sebi ordered NSE to disgorge or return illegally gained profits worth ₹62.58 crore and barred the exchange’s top officials from holding market-related positions. A penalty of ₹7 crore was also imposed on NSE in 2022, which was set aside by the Securities Appellate Tribunal (SAT) after NSE challenged it.

Aggrieved by this order, Sebi filed appeals before the Supreme Court in September 2023 and February 2024, where NSE has been asked to file its response. The appeals are yet to be heard.

“There are over a lakh (100,000) investors in the company at present, so an IPO is something that has to happen sooner or later subject to the discussions fructifying," the second person added.

Unlike regular companies, market infrastructure institutions (MIIs) such as stock exchanges, depositories, and clearing corporations must first seek an NoC from Sebi before filing their DRHP with the regulator. This is because of their systemic importance to India’s financial market architecture.

Queries emailed to Sebi and NSE on the matter remained unanswered till press time.

While speaking at an event of Assocham in Delhi, Sebi chairman Tuhin Kanta Pandey had indicated that all the outstanding issues will be resolved, and the regulator will move forward with respect to the IPO. “NSE and Sebi are talking, they are resolving the issues, and I'm very hopeful it will be cleared and will move forward," Pandey said.

Investor excitement over a possible regulatory nod has already lifted the exchange’s unlisted shares. “The anticipation of Sebi’s NoC and limited share supply have pushed up unlisted NSE shares from ₹1,550 two weeks ago to almost ₹1,900 apiece now," said Viral Mehta, product lead for private equity at IIFL Capital Services Ltd.

Further, the number of investors in NSE rose from about 22,000 in March to over 100,000 currently, according to an InCred Money report, after the bourse expedited the share transfer process, reducing timelines from six months to a single day in line with regulatory changes.

NSE is India’s leading exchange, commanding a 93.6% market share in the equity cash segment and 87.4% in equity derivatives (based on premium turnover) as of FY25, according to exchange’s data.

Its shareholders include Life Insurance Corporation of India (10.72%), Stock Holding Corporation of India (4.44%), SBI Capital Markets (4.33%), and State Bank of India (3.23%). Foreign direct investment (FDI) in the bourse stands at 21.7%, with Mahogany Ltd holding 3.93%, Canada Pension Plan Investment Board 1.6%, and private equity firm Crown Capital, 2.3%.

The IPO, whenever it occurs, is expected to be an offer for sale (OFS), with some existing investors offloading small portions of their holdings to facilitate price discovery. Post-listing, share prices will be determined by demand and supply dynamics.

The exchange’s IPO has been on hold since 2016 due to corporate governance lapses by a previous management, including the colocation and algorithmic trading controversies, aside from compensation given to key management personnel, technology, and the majority ownership in Clearing Corporation, among others.

The investor appetite for a listed exchange is evident in the performance of NSE’s smaller rival. BSE Ltd., which was listed on 3 February 2017 at ₹1,085 (a 35% premium to its issue price of ₹806), closed at ₹2,448 per share on Friday. Adjusting for its recent 2:1 bonus issue, that represents a 5% gain over the previous close.

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