The Securities and Exchange Board of India (Sebi) may finally give in-principle approval to the National Stock Exchange (NSE) for an initial public offering (IPO) of its shares six months after it approached the regulator but with riders, sources told Moneycontrol.
The Sebi may ask the country’s biggest exchange to declare all the cases it is facing along with their status in the draft red herring prospectus, the preliminary document that a company submits in preparation for an IPO, sources said.
"The exchange will need to furnish all details of co-locations cases, including Escrow account where co-locations income is parked. Then it is for investors to decide whether they want to invest or not," a source said.
The sources spoke to Moneycontrol on the condition of anonymity.
The Sebi and NSE did not respond to Moneycontrol’s mails seeking comments.
The market regulator had in 2016 ordered NSE to conduct a forensic audit of its systems following complaints of preferential treatment enjoyed by some brokers.
A whistleblower had alleged that some brokers between 2011 and 2014 had placed their servers at the same location as NSE’s algorithmic trading servers. They enjoyed an unfair advantage as they could gain faster access to the trading system.
In a trade where fortunes are made and undone in a matter of seconds, it led to a huge uproar.
A Sebi probe found that NSE systems could be manipulated and barred the exchange from capital markets for six months, starting April 2019.
The exchange was also asked to deposit revenue from its co-location service in an Escrow account. The money in the account is expected to have swelled to at least Rs 2,500 crore.
In January this year, NSE Managing Director Vikram Limaye told media that the exchange would go to the regulator again for an IPO and hoped to be listed in the third quarter of this calendar year.
The NSE had in December 2016 filed a draft red herring prospectus but Sebi put the application on hold following the co-locations case probe.
The Sebi had also asked NSE had to pay around Rs 625 crore along with 12 percent interest per annum in the case. It also clawed back the salaries of some senior officers of the exchange.
A Central Bureau of Investigation and an income tax department probe in the case is still on.
"Basically, the NSE IPO is an offer of sale for existing clients, most of which are financial institutions. So, if they declare risk factor in their DRHP, then the regulator should not have a major problem,” another source said.
The Sebi took an issue with NSE challenging some of its order in the Securities and Appellate Tribunal but it was a common regulatory practice for listed entities, a source said. Though the exchange is not listed but is a first-level regulator as companies making disclosures to it, another source said.
The Life Insurance Corporation is the biggest stakeholder in the NSE with a 12.51 percent stake. State Bank of India has a 3.63 percent stake, SBI Capital Market Limited 4.33 percent, General Insurance Corporation of India 1.64 percent, New India Assurance Company 1.42 percent and the Stock Holding Corporation of India Limited has a 4.44 percent stake in the exchange.
The NSE may get listed on the Bombay Stock Exchange or the Metropolitan Stock Exchange, a source said.
The Mumbai-based exchange has more than 95 percent market share in the derivatives segment and almost 90 percent in the cash segment.
The Bombay Stock Exchange and the Multi Commodity Exchange are already listed on the bourses. Recently, the National Commodity Derivative Exchange, a subsidiary of the NSE, got the Sebi go-ahead for an IPO. The NSE holds a 15 percent stake in NCDEX.