Why can’t NSE trade on its own platform after the IPO, and is it a big deal?

National Stock Exchange will not seek Sebi approval to trade its shares on its own platform, its MD and CEO Ashish Chauhan clarified last week. This has thrown the spotlight on the governance rules for market infrastructure institutions ahead of the exchange’s IPO. The clarification came even as NSE is preparing for one of India’s most-awaited IPOs. The exchange is expected to list only on BSE, since Sebi rules do not allow a recognised stock exchange to list its own securities on its own platform.

Under Regulation 45(1) of the Sebi Stock Exchanges and Clearing Corporations Regulations, 2018, a recognised stock exchange can list its securities only on another recognised stock exchange. So, NSE cannot trade on NSE after listing.

Ishan Tanna, Senior Associate at Ashika Capital, said the rule is clear. “NSE cannot list its shares on its own platform because Indian securities regulations explicitly prohibit self-listing,” he said.

He said the restriction is meant to address governance and conflict-of-interest concerns. “Listing one’s shares on your own exchange is not an ethical practice. There could be fears of manipulation and hence NSE decided not to move with the application to trade on its own platform,” he added.

Also Read: Inside NSE IPO journey: Why India’s largest exchange took 10 long years to reach Dalal Street

Why is this a big deal

Listing an exchange is not like any other company. NSE runs the trading system, oversees market activity and acts as the first layer of supervision for listed securities. If its own shares traded on the same platform, the exchange would also be supervising trading in its own stock.
That can raise questions for which there are no easy answers. Like, who monitors trading in the exchange’s shares? Who handles unusual price moves? Who examines disclosure issues or surveillance alerts? Even if the systems are fair, the structure can create a perception problem.This concern was also discussed in the Jalan Committee’s work on market infrastructure institutions. The committee had noted that privately held stock exchanges may seek listing to give an exit route to shareholders, but listing a stock exchange raises several issues, including who would monitor listing compliances when the listed company is itself a market institution.

The committee also examined whether a market infrastructure institution should be allowed to list in view of the inherent conflict of interest. While it did not settle every issue around cross-listing and self-listing, its observations remain relevant because they show why exchanges are treated differently from normal companies.

Is it a big deal?

For NSE, the self-listing point is not a setback. The exchange’s shares will trade on another recognised exchange, keeping some distance between NSE as a listed company and NSE as a market operator.

The IPO itself is expected to be entirely an offer for sale. NSE will not receive fresh capital from the issue. Existing shareholders will sell part of their stake to public investors.

NSE had earlier proposed an OFS of up to 14.89 crore shares. The updated filing has reduced the offer size to about 12.64 crore shares. The IPO size is now expected to be around Rs 22,500-23,500 crore, lower than the earlier expectation of about Rs 30,000 crore.

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