The National Stock Exchange (NSE) is preparing to launch what could be India’s largest initial public offering at Rs 30,000 crore, but this landmark move faces renewed scrutiny following a prolonged delay and regulatory restrictions on its derivatives business. The IPO's postponement stretched over more than a decade, chiefly due to a high-profile co-location controversy that erupted between 2010 and 2014.

During that period, certain brokers gained unfair milliseconds advantage by accessing backup servers inside NSE’s data center before others. This practice was uncovered through a forensic audit, prompting an investigation by the Securities and Exchange Board of India (SEBI). Although NSE sought to move forward with the IPO by filing a draft prospectus in 2016, unresolved legal and regulatory hurdles stemming from this controversy halted the process.

Since then, NSE has navigated a complex web of penalties, tribunal decisions, and Supreme Court proceedings. The issue currently nears a conclusion with NSE proposing a revised settlement of Rs 1,491 crore with SEBI, which is reportedly close to resolution. The return of Ashish Chauhan in 2022, a founding member of NSE with prior experience leading another exchange’s listing, played a crucial role in rebuilding regulatory trust and relaunching the IPO plan.

While the listing was delayed, NSE’s business expanded substantially. Its revenue reportedly multiplied nine times since FY16, shifting the income structure significantly. Transaction charges, primarily driven by derivatives trading, surged from representing about half of the income in FY16 to nearly 79 percent by FY26. Among these, options trading has emerged as the dominant revenue source, accounting for roughly 60 percent of the exchange’s operating income.

However, the derivatives segment has also attracted regulatory scrutiny amid concerns over investor losses. SEBI data shows that a vast majority of retail traders—91 percent—incurred net losses in futures and options trading during FY25, amounting collectively to roughly Rs 1.1 lakh crore. To curb excessive speculation and risk, SEBI introduced sweeping reforms in 2024, including:

  • Condensing seven weekly expiry events across exchanges to a single weekly index expiry,
  • Assigning NSE’s Nifty index expiry to Tuesdays and BSE’s Sensex expiry to Thursdays,
  • Increasing contract sizes,
  • Enforcing higher margin requirements closer to expiry dates.

FY26 marked NSE’s first full year under these revised rules. The exchange reported a year-on-year decline in revenue from operations of approximately 3 percent. Adjusted profit after tax dropped 17 percent to Rs 9,101 crore, down from Rs 10,978 crore in FY25. The regulatory clampdown also reflected in NSE’s equity options market share, which fell sharply from 97 percent in FY24 to 75 percent in FY26.

This downturn underscores NSE’s heavy reliance on options trading, raising concerns about how regulatory changes could impact its long-term profitability and stability in the lead-up to the IPO. The resolution of the co-location controversy and the evolving regulatory environment are critical factors shaping investor sentiment toward the exchange’s record-breaking public debut.