The National Stock Exchange's (NSE) much-awaited IPO has faced repeated delays, held back by regulatory and legal hurdles. With a new Sebi chairperson now in place, the exchange is renewing its push to go public. But the road ahead may still be far from smooth. Reena Zachariah looks at the challenges NSE faces and what lies ahead.What are the key hurdles facing NSE to launch its IPO?The proposed NSE IPO continues to face regulatory hurdles, with the Securities and Exchange Board of India (Sebi) raising multiple concerns. Chief among them is the long-standing co-location case. In addition to the co-location issue, Sebi has flagged concerns over the exchange's technology infrastructure, citing repeated technical glitches and how they were handled along with other operational and governance matters. Many of these cases are yet to be resolved.What is the co-location case and what is its status?The co-location case dates back to 2015, when a whistleblower alerted Sebi to possible manipulation in NSE's trading system. Sebi's investigation found that certain brokers were given preferential access to NSE's secondary servers, allowing them to execute trades faster than others. The regulator said the exchange's tick-by-tick data system was prone to manipulation, giving an unfair advantage to those on less congested ports and disadvantaging a large section of its members. In April 2019, Sebi passed multiple orders against NSE, its then-senior management, broker OPG Securities, and others. These were challenged before the securities appellate tribunal, which granted partial relief. Sebi has since appealed the tribunal's decision in the Supreme Court, where some cases are still pending. The co-location case is also under investigation by the Central Bureau of Investigation (CBI). The probe is still on.What are Sebi's other concerns regarding the NSE IPO?Sebi also raised concerns about the technology infrastructure at NSE, particularly after several technical glitches at the exchange and how these were managed. The regulator also pressed NSE to tackle issues related to its key managerial personnel (KMP), having identified a significant pay gap between the managing director and other KMPs responsible for critical functions. Sebi wanted the exchange to review the ownership and economic structure of its clearing arm, as it believes that clearing firms should operate independently from exchanges. The regulator wants a full-fledged chairman on NSE board, as currently, public interest directors take turns to chair the board meeting.When did NSE first seek Sebi's nod for its IPO?NSE first approached Sebi for its IPO approval on October 18, 2016, and filed its offer document on December 28 that year after receiving the regulator's nod to list. But the process was halted on May 31, 2017, when Sebi asked the exchange to wait for its observations. In 2019, Sebi returned the document, advising NSE to refile only after the co-location probe was resolved. Since then, NSE has repeatedly sought a no-objection certificate, with the latest request submitted on March 28 this year.Why does NSE want to go public?NSE is facing pressure from some large shareholders as a listing would boost its valuation. Some private equity funds exited NSE due to the end of their funds' life cycle, while others transferred their NSE holdings to different funds. To be sure, NSE shares are actively traded in the unlisted market, with the exchange having over one hundred thousand shareholders.Where can NSE list its shares?Sebi rules bar stock exchanges from listing their own shares on their platforms to avoid conflicts between commercial and regulatory roles. As a result, NSE can list its shares only on a rival exchange-namely, the BSE.How is NSE proposing to tackle Sebi's concerns?It has written to Sebi, seeking resolution of all outstanding matters before it and other judicial bodies via the settlement process by paying an amount. It also communicated to Sebi its commitment to comply with all modifications in regulations concerning clearing corporations. Any potential changes in the rules governing clearing corporations will be disclosed under risk factors in the IPO offer document. It said it will also follow any future amendments related to KMP compensation as per Sebi regulations and will rectify any shortcomings identified in the future regarding its technology infrastructure.Is it common for stock exchanges to list themselves?Yes, many stock exchanges are listed entities. BSE is a listed entity. Some of the foreign stock exchanges like London Stock Exchange, Deutsche Boerse, Singapore Exchange and Australian Stock Exchange are also listed. Even though one of the earlier Sebi committees had viewed that stock exchanges should be closely held. There is now a consensus among policymakers who do not object to listing.
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