NSE plans to launch IPO, waits for SEBI Approval

The National Stock Exchange is waiting for SEBI to give a green flag for its Initial Public Offer. NSE’s CEO Ashish Kumar Chauhan stated on 4th April while addressing a journalist query in Mumbai. The stock exchange and the security regulator have been in disagreement, which led to this delay in the IPO launch.

What is the NSE vs. SEBI regulatory tussle?

NSE had filed its draft papers with SEBI for its IPO. However, it got delayed due to its NSE irregularities. SEBI has raised certain governance issues for NSE. One of them included the co-location scam of 2015, where several algo traders rented out areas near the NSE servers, getting the upper edge in wrongfully obtaining prior information and then picking up large chunks of money in trading.

After being alerted, SEBI investigated the facts and found that NSE had violated several provisions of the SEBI Act and the Stock Exchanges and Clearing Corporations (SECC) Regulations. In 2019, SEBI passed an order stating the disgorgement of money and directed NSE to pay Rs 625 crore along with interest plus a penalty of Rs 100 crore.

The NSE challenged this order in higher courts. In the end, the Supreme Court gave partial relief to NSE by ordering SEBI to pay Rs 300 back to NSE. However, the Rs 100 crore penalty imposed remains valid. Additionally, NSE will have to wait for SEBI’s appeal against the NSE’s order challenging the set of disgorgement orders.

SEBI is taking its time to gauge NSE’s credibility.

In 2019, after the whole co-location scam came out, SEBI banned NSE executives, namely Chitra Ramkrishna and Ravi Narain, for putting in place such networks, which allowed unfair access to some network servers of the exchange. The Enforcement Directorate (ED) also arrested Chitra Ramkrishna in the phone tapping case.

Since then NSE has been striving to regain the lost credibility. The exchange went on to address their issues proactively and took several measures for the co-location issue. They also took steps to improve their systems and processes for better governance.

What are the conditions for NSE to fulfill its IPO?

The NSE IPO is one of the most awaited IPOs among all the unlisted shares trading in the grey market. SEBI imposed certain conditions on NSE before the launch of its IPO.

According to the SEBI:

1. NSE needs to improve its technological infrastructure.

2. NSE needs to go glitch-free for at least 1 year before its IPO.

3. NSE should improve its corporate governance structure and clear its legal matters.

Currently, companies with a post-listing market capitalization of more than Rs. 1 lakh crore are required to dilute a minimum of 5%. NSE is looking to dilute less than 5% and restrict this to 3-3.5%.

Hence, SEBI is taking its own time to be ok with NSE’s operations. Once they are comfortable, the exchange will be allowed to reapply for its issue, Chauhan stated.

How are the financials of NSE performing?

The NSE reported an 8% year-on-year rise from its December quarter to Rs 1975 crore. The consolidated revenue from operations also grew by 25% year-on-year to Rs 3517 crore.

Not just the trading revenue, NSE also grew in providing other services like data center and connectivity charges, clearing services, listing services, index services, and data services.

Hence, the net profit margins for Q3FY24 stood at 51%. As of December 31, 2023, about 55.51% of NSE’s shareholding was with the public, while the rest is owned by non-public entities.

NSE’s growing trade volumes and contribution to the exchequer.

NSE disclosed that its cash markets recorded an average daily traded volume (ADTV) growth of Rs 80,512 crores, which is 50% more YoY. Also, the equity futures saw an ADTV growth of 18% year-on-year to Rs 3517 crores. For equity options, the growth was around 28% year-on-year to Rs 56,707 crore.

How can you purchase NSE shares?

Considering the conditions set up by NSE and the steps to be taken, the IPO may get delayed, thereby making investors lose out on holding and gaining from the listed shares in NSE. However, investors can still invest in NSE unlisted shares. At Stockify, we help you buy and sell unlisted shares of NSE and other blue-chip companies that are not listed on the Indian stock exchange. Giving you an early mover advantage over other investors.

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