The National Stock Exchange’s proposed Rs 30,000 crore initial public offering, expected to be the largest share sale in Indian history, comes after a decade-long delay caused by the co-location controversy. Even as the exchange prepares to list, recent regulatory curbs on derivatives trading have weighed on its revenue, profitability and market share, raising fresh questions ahead of the long-awaited IPO, as per the Value Research report.
The roadblock stemmed from the co-location controversy between 2010 and 2014, when certain brokers connected first to a backup server inside NSE’s data centre, allowing them to receive market data milliseconds ahead of others.
A forensic audit confirmed the pattern, and SEBI launched an investigation. With the regulatory case still unresolved when NSE filed its draft prospectus in 2016, the uncertainty was sufficient to stop the listing process, the report said.
The issue then moved through years of SEBI penalties, tribunal proceedings and the Supreme Court. The matter is now in its final phase, with NSE proposing a revised settlement of Rs 1,491 crore with SEBI, which is reportedly nearing resolution.
The return of Ashish Chauhan in 2022 played a significant role in reviving the IPO process. A member of NSE’s founding team who later led BSE’s 2017 listing, Chauhan helped restore regulatory credibility and put the exchange’s long-delayed public issue back on track.
During the decade in which it remained unlisted, NSE expanded rapidly. Its revenue grew roughly nine times, while the composition of its income changed significantly. Transaction charges, which accounted for 49.5 per cent of total income in FY16, increased to 78.7 per cent by FY26, driven primarily by the rapid expansion of derivatives trading, especially options.
Options trading has become the exchange’s biggest revenue generator, contributing roughly 60 per cent of operating revenue. However, the segment has also come under increasing regulatory scrutiny. According to SEBI’s data, 91 per cent of futures and options retail traders incurred net losses in FY25, collectively losing about Rs 1.1 lakh crore.
To slow activity in the derivatives market, SEBI introduced several changes from 2024, including reducing seven weekly expiry events across both exchanges to one weekly index expiry, assigning NSE’s Nifty expiry to Tuesday and BSE’s Sensex expiry to Thursday. The regulator also increased contract sizes and imposed additional margins near expiry.
FY26 became the first full financial year in which NSE operated under the revised framework. Revenue from operations declined by about 3 per cent year-on-year, while adjusted profit after tax fell 17 per cent to Rs 9,101 crore from Rs 10,978 crore in FY25. During the same period, NSE’s market share in equity options declined from 97 per cent in FY24 to 75 per cent in FY26.
The decline highlighted the exchange’s dependence on options trading, with no other business segment large enough to offset the impact. The remaining 21 per cent of NSE’s top line comes from data feeds, listing fees, index licensing and co-location charges, which are recurring, less volatile and continue to grow.
