NSE IPO hangs in the balance as Sebi flags regulatory gaps in fresh letter

In a detailed communication, regulator spells out areas that bourse has to address before it goes for an IPO

The National Stock Exchange’s (NSE’s) plan to launch an initial public offering (IPO) remains in limbo as the Securities and Exchange Board of India (Sebi) has highlighted several deficiencies in its latest communiqué to the exchange. 

Sources said Sebi, in a comprehensive letter, has outlined all the areas the country’s top bourse must address before it is IPO-ready. Sebi has given NSE up to 24 months to resolve these issues before seeking approval for its long-delayed maiden IPO.  “The recent activation of NSE’s International Securities Identification Number — a unique global code for securities trading and settlement — to enable faster transfer of NSE shares was seen as a precursor to the IPO. However, Sebi’s letter indicates that the IPO’s fate remains uncertain,” said a source. NSE declined to comment, while queries sent to Sebi remained unanswered until the time of going to press. 

  According to sources, Sebi’s letter was sent in late February by the regulator’s Market Intermediaries Regulation and Supervision Department. It remains to be seen how the change in leadership at Sebi alters the dynamics.

  At a recent press conference, when asked about the NSE IPO, Sebi Chairperson Tuhin Kanta Pandey said, “We will apply our mind to how we can take it forward and what the issues are.”  Pandey took charge of Sebi on March 1.

  According to data from UnlistedZone, NSE shares were trading at around ₹1,650 apiece in the unlisted market, valuing the exchange at ₹4.1 trillion.

  The NSE IPO is expected to be purely a secondary offering, as the exchange remains well-capitalised.

NSE’s IPO plans have been stalled since 2016, when it first filed the draft red herring prospectus (DRHP) amid mounting pressure from certain investors seeking an exit.

  Sebi returned the DRHP in 2019, advising the exchange to submit fresh filings after the resolution of the infamous colocation matter.

  In June 2022, NSE once again sought Sebi’s approval for listing.

  A month later, Sebi responded with observations on issues related to technology, governance, surveillance, trading, and lapses in its role as a first-level regulator, including inspection and offsite monitoring.

  The exact concerns raised by Sebi in its latest communication could not be ascertained.

Hopes for the IPO were revived after the People Activism Forum filed a petition in the Delhi High Court (HC) seeking to expedite the listing process.

  In August 2024, NSE filed a fresh application for a no-objection certificate (NOC) from Sebi after the market regulator said during a court hearing that the exchange had not formally approached it for an IPO. 

  After nearly six months of filing for the NOC, the Delhi HC scheduled a hearing for March 6. However, the matter was adjourned to May 26 following a request from NSE’s legal counsel.

  The closure or settlement of several pending cases involving NSE and its former management was seen as a step towards facilitating the IPO.

  In the colocation matter, Sebi dropped charges against NSE’s former executives Chitra Ramkrishna, Ravi Narain, and Anand Subramanian in September 2024, citing a lack of evidence to support the allegations.

The regulator noted that while there were lapses in the facility, no evidence established “collusion” or connivance with stockbroker OPG Securities, which had gained unfair access to the exchange’s secondary server.

  In October 2024, NSE settled the matter related to the misuse of the trading access point with Sebi for ₹643 crore.

While most of the legacy cases NSE has been embroiled in have been settled, a few matters remain pending for final hearings.

  Sebi has appealed against the Securities Appellate Tribunal (SAT) order in the adjudicating officer’s ruling on the dark fibre case before the Supreme Court (SC). The matter is awaiting a final hearing before the SC. Another appeal filed by Sebi against a SAT order in the colocation matter is also pending a final hearing. 

Other investigations related to alleged irregularities in the appointment of the chief strategic advisor are ongoing. In this case, Sebi had imposed a ₹2 crore penalty, which NSE paid in 2022.