New Bottle, Ol’ Wine: NSE’s IPO Puzzle

[Vasupriya and Ketayun are Master of Law students at the University of Cambridge.]

When the Hubble Space Telescope first rose into orbit, it was designed to be a lasting  monument to human curiosity, a machine that would outlive its makers and quietly expand the boundaries of what we knew. However, the universe appeared blurred once the telescope’s eye turned outward. We chose to meet this problem with care and patience, rather than abandoning our dreams of seeing the universe clearly. We turned to the telescope, opened it piece by piece, and corrected what time and error had distorted. When Hubble opened its eye again, the universe came into focus, brighter, deeper, and more astounding.  

The National Stock Exchange (NSE) listing saga feels uncannily similar and carries an analogous sense of promise, anxiety, and belated rectification. After nearly a decade of delay, the question is no longer whether the market is ready, it is whether the institution is. 

In the 2000s, most leading exchanges in the world underwent demutualisation (demutualisation refers to the process through which a company owned by its members changes into a shareholder-owned company) and listing. Recognising that modern capital markets require  transparency, professional governance, and institutional accountability, the London Stock Exchange, Nasdaq, Australian Securities Exchange, and several others embraced this  transition. 

India, too, moved in step with this global evolution and introduced the Securities Laws (Amendment) Act 2004, in response to the demutualisation trend, the objective being  elimination of conflicts of interest, reduction in broker dominance, and alignment of the exchange with the global standards of governance. 

NSE’s Journey towards Achieving Listing Status 

Following the recommendations of expert committees that envisioned a professionally run,  technology-driven exchange starkly distinct from traditional broker-led models, the world’s largest derivatives exchange by trading volume, NSE, was demutualised from its inception. 

Unlike the Bombay Stock Exchange, which listed its securities in 2017, NSE has faced regulatory hurdles, since its first attempt at an IPO in 2016, in its pursuit of ‘ListCo status’. Its proposed listing has repeatedly failed to secure the Securities and Exchange Board  of India’s (SEBI) approval owing to pending legal proceedings and unresolved concerns relating to corporate governance, regulatory compliance, and institutional accountability. Now, however, SEBI Chairman Mr Tuhin Kanta Pandey is seen waving the green flag for the listing of the NSE despite SEBI having consistently pursued NSE through the courts for the past  decade for the bungled management of its affairs.  

The considerations for listing a stock exchange on the public market are both economic and regulatory in nature. From an economic perspective, listing provides an efficient mechanism for raising capital, enabling exchanges to fund technology upgrades, enhance market  infrastructure, and thrive in an increasingly competitive trading environment. Publicly listed  shares also serve as an effective acquisition currency, allowing exchanges to pursue strategic  mergers and expansions without excessive leverage.  

While India’s stock market, reflective of geopolitical tensions and investor sentiment, is facing constant fluctuation, India’s macroeconomic outlook in 2025–26 remains robust. The  International Monetary Fund has revised its estimate of India’s GDP growth in 2025- 26 to 7.3% from its earlier prediction of 6.6%, citing stronger-than-expected quarterly performance and sustained momentum. India has emerged as an attractive destination for cross border investment. 

From a regulatory and governance standpoint, listing helps address the structural weaknesses  inherent in large unlisted exchanges. Unlisted exchanges suffer from the maladies of opacity, lack of regulatory oversight, and low liquidity. Such arrangements risk regulatory capture,  resistance to innovation, and deficient decision-making. 

The challenges facing NSE in its decade-long struggle to achieve listing are not financial viability issues, but those of credibility, governance, and institutional trust deficits. A listing, in this case, would operate as a disciplining and stabilising mechanism, rather than a mere shareholder enrichment exercise. 

NSE has been plagued in the recent past by a few ghosts of its own. NSE continued to operate the Trading Access Point despite known vulnerabilities, failed to prevent or deter its possible bypass, and did not escalate these deficiencies to its technology oversight committee. It was alleged to have violated cybersecurity norms by delaying the appointment of a Chief Information Security Officer and by not implementing encryption, thereby undermining system security and market integrity. After the discussions with the SEBI High Powered Advisory Committee and internal meetings within SEBI, the market regulator approved a composite payment of approximately INR 643 crore as settlement fees by the stock exchange, along with 14 days of pro-bono community service by certain NSE employees during FY25. Therefore, the matter stands concluded, without a decision on the merits.  

Another case that jolted the conscience of the trading community was the co-location services case, which concerned a facility NSE offered whereby brokers could place their trading servers  physically close to the exchange’s matching engine to gain speed advantages. A whistleblower letter in 2015 triggered a detailed SEBI investigation, which found that certain brokers may  have received preferential access to NSE’s systems and data feeds, giving them unfair trading advantages. SEBI’s orders in 2019 imposed fines (over INR 1,100 crore, currently proposed to be settled with an offer around INR 1,388 crore) and required remediation actions by NSE before it  could secure regulatory comfort to proceed with a public listing. Since these investigations ended up in appellate courts, unresolved litigation meant SEBI withheld a final no-objection certificate for NSE’s IPO for many years.  

At this juncture, an IPO would help establish NSE as a strong, profitable, and cash-rich financial institution in the minds of the public and bring its balance sheet, revenue streams, risk management, and capital allocation practices into full public view, allowing markets to independently assess its robustness.  

Will a Self-Listed NSE be Truly Neutral? 

NSE is not an ordinary issuer. It is a dominant trading venue in India, and an entity exercising  quasi-regulatory powers over brokers and market participants. Moreover, NSE’s past represents  a trepidatious matrix for testing neutrality safeguards. SEBI’s insistence on resolving NSE’s legacy issues before listing was an effort to ensure that the IPO floatation does not entrench  past failures. 

Even where formal regulatory authority rests with the state, exchanges tend to exercise significant discretion over surveillance, disciplinary processes, and market design. Thereby  ensuring a balance of fairness and profitability, an imperative for most exchanges, as any  perceived bias could corrode market credibility. 

Therefore, if NSE were to pursue self-listing, it must ensure that its regulatory responsibilities are separated and independently overseen, much like the Nasdaq-FINRA model, so that listing does not merely shift priorities toward profitability at the expense of market integrity. 

Nasdaq is a major US national securities exchange that lists its own stocks, but its regulatory  duties are managed by FINRA (or another independent self-regulatory organisation) as required by The Nasdaq Stock Market LLC Rules. In 2003, the National Association of Securities Dealers (NASD) had to intensify its regulatory eye over investor protection and market integrity as investor confidence was deeply shaken by fraudulent activities in the securities and mutual fund industries, similar to that of the NSE’s scandals. NASD strengthened rule-making in areas such as analyst conflicts of interest and IPO practices, while significantly  expanding transparency in the corporate debt market through the TRACE reporting system. NASD also uncovered major mutual fund breakpoint discount failures, prompting firms to refund overcharged investors and face enforcement actions. These measures reflected a broader shift in NASD’s structure, focusing its operations on regulation while divesting exchange ownership. This highlighted the significance of independent oversight for market stability which is an important consideration for the NSE as it moves toward listing on its own exchange. India’s previous regulatory hesitation toward listing its principal exchange would now find comfort in the adoption of a Nasdaq akin structure with NSE.

In a similar vein, Singapore adopted a trifurcated approach to listings. SGX functions as the commercial operator of the exchange and the Singapore Exchange Regulation (SGX RegCo) independently administers  and enforces the listing and disclosure framework. SGX RegCo, a wholly owned subsidiary of SGX, is responsible for reviewing listing applications, overseeing ongoing compliance, and drawing support from advisory committees and sponsors in the case of Catalist issuers, while retaining full accountability for listing decisions. Overarching statutory oversight is exercised by the Monetary Authority of Singapore, which approves the listing rules and regulates  SGX’s own listing to mitigate any possible conflicts of interest. This is also a structure that is worth being explored by NSE.  

Given India’s strong macroeconomic conditions and maturing regulatory architecture, 2026  presents a viable economic window for NSE’s listing, provided that governance concerns are conclusively resolved and NSE’s listing is deployed as a reinforcement, rather than a replacement of regulatory credibility. The NSE listing cannot be viewed as a be-all and end-all for attracting foreign investment, it must be complemented by sustained support for entrepreneurial innovation, coherent investment-promotion policies, and the development of robust, credible institutional infrastructure. 

Thus, with careful treading, NSE’s listing, just like the corrected Hubble telescope, has the potential to convert regulatory repair into durable institutional discipline by embedding transparency, market scrutiny, and shareholder accountability into its governance framework.