Brokers' stake in NSE at its lowest in a decade ahead of listing

Shareholding of trading members and associates lowest in over a decade

Brokerages have been cutting down on their holding in India’s largest bourse by volume, the National Stock Exchange (NSE), ahead of its listing.

 

The stake of trading members and associates in the NSE has fallen from the peak of around 53.9 per cent in March 2019 to 35.6 per cent as of March 2026. The latest available stake is the lowest on record in yearend data going back to March 2016. The NSE is gearing up for an initial public offering (IPO) that has been in the making for years.

 

Stock exchanges were earlier owned and governed by stock brokers. The government pushed for separating trading rights from the running of the exchange in the early 2000s in a process called demutualisation. This was to avoid conflict of interest where brokers can influence the working of stock exchanges to their own benefit. Brokers were given ownership stakes in stock exchanges even as their role in governance was slowly brought down. The NSE had been set up as a demutualised entity and had already separated broker ownership and exchange governance at the time when demutualisation became mandatory for other exchanges.

 

Brokers have interests which remain aligned with stock exchanges and can continue to play a role in developing bourses through the feedback they provide, and the clients they bring to the exchange, according to Anand Rathi, chairman and founder of the Anand Rathi group and former BSE president. He pointed out that incidents of brokerage failures in recent years have been rare despite the surge in trading volumes, thanks to timely regulatory interventions from the Securities and Exchange Board of India (Sebi). This speaks to the progress of Indian markets compared to where they were 20-30 years ago, as well as rising standards in comparison to the rest of the world.

 

"I think as a whole, our ecosystem is far, far ahead," he said. 

 

The measures to avoid conflict of interest has helped the market and stock exchanges run better, suggested Churiwala Securities managing director (MD) Alok Churiwala, who was director of the BSE between 2001 and 2005, around the time of the move towards demutualisation.

 

“That has stood the test of time… the exchanges are better governed,” he said.

 

The rise in stake as of 2019 can be traced back to the Life Insurance Corporation of India (LIC) picking up 51 per cent stake in IDBI Bank in 2019. The bank was classified as a trading member. When LIC picked up stake in IDBI, it was classified as an associate of a trading member, leading to an increase in the stake of trading members as a category to over 53 per cent. Sebi had subsequently asked LIC to reduce its stake by 4.89 per cent to bring it in line with a requirement for trading member stake to not exceed 49 per cent, show NSE filings. The stake of trading members and associates has continued to fall even further, to the present low. Interestingly, the number of shareholders has gone up to reach 2,974 as of March 2026, suggesting that a greater number of brokers and associate entities have a stake. In value terms, however, trading members as a category have cut their stake by over 18 per cent from the 2019 peak.

 

Finsec Law Advisors managing partner Sandeep Parekh, who has been part of a regulatory committee to study the future of regional stock exchanges after demutualisation in 2006, said that the conflicts affecting exchanges earlier are addressed by the fact that trading members are not allowed to be on the board of the stock exchange, and thus unable to influence its functioning. Their stake is also restricted to 5 per cent each as for all shareholders on an individual basis, and not exceeding 49 per cent for trading members overall, even as they are kept away from the board.

 

Some international exchanges still allow for trading members to have a seat on the board, such as the CME group that runs the Chicago Mercantile Exchange (CME). "Globally, it is not prohibited," Parekh said.

 

"No trading member or clearing member, or their associates and agents, irrespective of the (recognised stock exchange or recognised clearing corporation) of which they are members, shall be on the governing board of any recognised stock exchange or recognised clearing corporation," according to the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations.