ABSTRACT
The proposed IPO of National Stock Exchange of India Limited (NSE), creates an interesting dilemma from the point of view of securities law: is it permissible for a stock exchange to become a publicly held company and list its shares on an exchange itself. Under Indian securities law, a recognised stock exchange may list its securities on another recognised stock exchange, subject to the applicable regulatory requirements, but cannot list its securities on itself or its associated exchange.. Regulation 45 of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 allows for the listing on another recognised stock exchange, under certain regulatory conditions. Thus the IPO of the NSE not only marks a significant corporate event, but also shows how the Indian securities law deals with issues of conflict of interest, integrity of the market and governance of a stock exchange as a Market Infrastructure Institution.
KEYWORDS
NSE IPO; Self-Listing; SEBI; Stock Exchange Regulation; Conflict of Interest; Market Infrastructure Institutions
INTRODUCTION
An IPO is not best defined simply as “a company that is not listed offers shares.” The more important point is that NSE is making a public offering/listing of its equity shares, and the NSE offering is structured as an Offer for Sale. NSE presents a unique situation because it is one of India’s principal stock exchanges. This raises a simple but important question. Can NSE list its own shares on itself?
The answer is no, given the current regulatory environment. However, this does not mean that a stock exchange cannot be a publicly listed company. Regulation 45 of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 (“SECC Regulations”) provides that a recognized stock exchange may list its securities on another recognized stock exchange, other than itself and its associated exchange. Therefore, the proposed listing of NSE on BSE is in consonance with the regulatory model already envisaged by Indian securities law.
WHY IS SELF-LISTING NOT PERMITTED?
The prohibition on self-listing is primarily about conflict of interest.
A stock exchange offers far more than a place for buying and selling securities. It performs functions related to surveillance, trading, listing and market integrity. If NSE’s own shares were traded on NSE, the very institution operating the market place will be trading its own securities on the market place.
This could create concerns regarding:
- Surveillance: NSE would monitor trading in its own securities.
- Enforcement: Regulatory decisions concerning its own shares could raise questions about independence.
- Information advantage: The exchange has extensive information concerning trading activity.
- Price discovery: Investors could question whether the market for NSE shares is completely independent.
- Investor confidence: Even the perception of a conflict can affect confidence in market institutions.
The law therefore utilizes structural separation rather than solely internal safeguards.
This is an important principle of securities regulation; there are some cases where the best resolution of a conflict may be avoidance of the conflicting roles altogether in the same entity.
REGULATION 45: THE LEGAL FOUNDATION
Regulation 45 of SECC Regulations serves as the basis of the listing of a stock exchange. It allows a recognized stock exchange to make an application for listing its securities at another recognized stock exchange, provided certain conditions are fulfilled such as complying with ownership criteria, operational trading for the specified time period, and the approval of SEBI. Notably, the exchange shall not list its securities on itself or the associated exchange.
Thus, three concepts must be distinguished:
- A stock exchange becoming listed: Permitted.
- A stock exchange listing itself: Not permitted.
- A stock exchange listing on another recognised exchange: Permitted subject to regulatory requirements and conditions specified by SEBI.
NSE’s official IPO documents record BSE’s in-principle approval for the listing of NSE’s equity shares.
THE INTERESTING PART: WHO WATCHES A LISTED STOCK EXCHANGE?
There is a relatively less-known regulatory mechanism governing the listing of a stock exchange on another stock exchange. In 2017, SEBI introduced an Exchange Listing Control Mechanism to address the potential conflicts that may arise when a stock exchange is listed on another stock exchange. The mechanism provides for monitoring of the listed stock exchange by the listing exchange and includes independent oversight and a Conflict Resolution Committee to address potential conflicts arising between the two exchanges.
NSE would therefore not become an ordinary listed company, because it would continue to function as a Market Infrastructure Institution subject to the regulatory framework applicable to recognised stock exchanges. BSE would act as the listing exchange for NSE, while SEBI would continue to exercise its statutory regulatory and supervisory authority.
The arrangement can therefore be understood as:
SEBI → regulates stock exchanges
BSE → provides the listing platform for NSE
NSE → operates its own stock exchange
This separation helps reduce the possibility that NSE will control the marketplace in which its own securities are listed.
BSE AND NSE: A UNIQUE RELATIONSHIP
The relationship between the BSE and NSE makes the above structure even more appealing because both stock markets are competing in the Indian securities market. Nonetheless, under the current regulatory structure, one stock market could become the forum where the securities of the other stock market are listed.This structure reflects the regulatory principle that an exchange should not be responsible for the listing and oversight of its own securities. BSE is itself a listed stock exchange, with its shares listed on NSE, demonstrating the cross-listing structure contemplated by the regulatory framework.
NSE’S IPO IS NOT A TYPICAL IPO
The structure of the IPO of the NSE is another critical aspect that is usually neglected while discussing the NSE’s IPO. It should be noted that the 2026 NSE IPO is an offer for sale of existing shares of the company and not a fresh issue of shares by the NSE, which means that the IPO funds do not go to the NSE but to the existing shareholders who sell their shares to public investors. It is crucial to distinguish between a fresh issue and an OFS since in the former case, the company makes a fresh issue of shares and gets the IPO money, while in the latter case, existing shareholders get the money from selling their shares. Thus, it would be inaccurate to state that NSE itself is raising approximately ₹22,569 crore through the IPO, because the offering is entirely an Offer for Sale and the proceeds go to the selling shareholders.
THE REGULATORY HISTORY BEHIND THE IPO
The path to NSE’s IPO has also been shaped by regulatory proceedings arising from the co-location matter.The issue was one of regulatory proceedings about access to co-location facilities of NSE as well as issues regarding preferential access to market data and infrastructure. SEBI had issued several orders on account of the same and the dispute later made its way to the Securities Appellate Tribunal and the Supreme Court. This particular regulatory background is important to know when analyzing the NSE IPO as when the investors invest in the company, they are not just investing in any other financial services firm but in an entity that manages market infrastructure and is regulated by securities regulations. Consequently, NSE’s regulatory history, including the resolution of long-running proceedings, forms an important part of the broader context in which its public listing should be considered.
NSE WILL NOT BECOME AN ORDINARY LISTED COMPANY
The IPO of NSE further illustrates the importance of MIIs. Stock exchanges are organizations whose role is not only confined to their owners but their operations have direct implications for brokers, companies quoted on the stock exchange, institutional investors and numerous individual retail investors. Therefore, the public listing of NSE will not free it from regulatory duties; the ownership and regulation of NSE will continue to be governed by the unique regulatory regime that applies to recognized stock exchanges. Thus, the NSE has to achieve a balance between two goals: on one hand, the goal of commercial success in terms of protection and maximization of shareholder value, and on the other hand, the goal of maintaining the integrity of the securities market. As a result, an exchange’s pursuit of commercial interests must operate within, and remain consistent with, its regulatory responsibilities.
THE LARGER LEGAL QUESTION
NSE’s IPO has brought to the forefront the issue relating to the regulation of a company by the regulatory agency. After becoming a publicly listed company, performance of NSE will have an impact on the shareholders. On the other hand, regulations related to trading, derivatives, transaction costs and the protection of investors can impact the financial performance of NSE. It is thus a unique case in which SEBI will be regulating the securities market in terms of public interest, even when such a regulatory decision might have an indirect impact on the financial interest of a stock exchange and its shareholders.
CONCLUSION
Thus, the question of whether a stock exchange can list its own shares is a complex one. While it is possible for a stock exchange to be a publicly listed entity, however, according to Regulation 45 of the SECC Regulations, it is not permitted to list its shares in either its own or associated stock exchange. It must use a recognised stock exchange other than its own, in compliance with SEBI’s regulations. It is for this reason that the IPO by NSE is a unique case because its proposed listing on the BSE ensures that there is institutional segregation between the exchange managing the market and the stock exchange listing its shares. The unique aspect about the IPO by NSE is also that it is conducted in the form of Offer for Sale, where existing shareholders sell their stakes in NSE rather than NSE raising new funds. In addition, its dual status as a commercial entity and a frontline market regulator proves that listing an MII entails public-interest responsibilities that go well beyond mere corporate fundraising. In essence, the NSE IPO is not only the story of one of India’s leading financial institutions going public but also of how securities regulation tries to strike a balance between commercial and regulatory concerns. The important thing here is that the legal framework does not merely pose the question of ownership of the exchange, but also that of supervision and regulation of such an exchange when the market infrastructure provider goes public.
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WRITTEN BY: KHWAISH SACHDEVA
