What Sebi Wants from NSE Before Approving Its IPO - Explained

The Securities and Exchange Board of India (SEBI) is reportedly in advanced discussions with the National Stock Exchange (NSE) to settle the long-running co-location case and pave the way for its long-awaited public listing.

At least two media reports have cited sources suggesting that the market regulator may permit the NSE’s public listing—but only after the co-location case, currently pending before the Supreme Court, is resolved.

These reports follow recent comments by Sebi Chairman Tuhin Kanta Pandey regarding the NSE IPO.

“NSE and Sebi are in discussions and are working through the remaining matters. I’m quite hopeful it will be concluded soon and we can move forward,” Pandey said on the sidelines of the ASSOCHAM 16th Capital Market Conference.

Sebi's Conditions for the NSE IPO

According to a report by NDTV Profit, Sebi is considering issuing a conditional No Objection Certificate (NOC) for NSE’s IPO, with specific disclosure requirements.

One of the key conditions would be that NSE must clearly list pending legal matters—such as the co-location or “dark fibre” case—as contingent liabilities in its Draft Red Herring Prospectus (DRHP).

An alternative option reportedly being considered is for NSE to settle the case via the consent route, according to the broadcaster.

Pending Co-location Case

The co-location case revolves around allegations that NSE provided unfair preferential access to certain brokers via its high-speed co-location facilities. In April 2019, Sebi directed NSE to disgorge Rs 625 crore with 12% annual interest from 1 April 2014, citing multiple regulatory violations.

However, in 2023, the Securities Appellate Tribunal (SAT) partially overturned Sebi's order. The tribunal held that the disgorgement was unjustified, stating NSE had not violated the Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) Regulations and that there was no evidence of fraud by the exchange or its employees.

SAT clarified that the issue was one of partial non-compliance with a SEBI circular, which did not amount to a breach of the Sebi Act or its regulations.

Sebi later appealed to the Supreme Court against SAT’s January 2023 ruling. While the court declined to stay the SAT order, it directed Sebi to refund Rs 300 crore to NSE—on the condition that NSE would return the amount with interest if Sebi appeal succeeds.

In October 2024, NSE agreed to pay Rs 643 crore to settle charges relating to unfair access via its Trading Access Point (TAP) software. However, this settlement did not cover all aspects of the co-location controversy. Sebi has dropped collusion charges against NSE and some former executives due to lack of evidence, but the appeal regarding the disgorgement order remains pending before the Supreme Court.

Sebi May Demand Heavy Penalty from NSE

According to a recent report by Moneycontrol, NSE and Sebi began settlement negotiations around six weeks ago, focusing on the financial penalty involved. Sources cited by the publication suggest that Sebi may demand nearly twice the Rs 643 crore that NSE paid in 2023 as part of a separate settlement.

However, given NSE’s partial victory before the SAT, the exchange is expected to push back strongly against a significantly higher penalty.

Under Sebi's settlement regulations, companies can resolve cases without admitting or denying guilt. The final amount is determined based on several factors, including the timing of the application, history of violations, legal expenses, and potential disgorgement.

NSE has reportedly expressed willingness to settle all outstanding matters. In a letter dated 28 March to Sebi , the exchange reiterated its intent to pursue an amicable resolution. NSE had previously sought a consolidated settlement and an NOC in August 2023.

Any final settlement would require the Supreme Court’s approval to withdraw the pending appeal. Once in-principle terms are agreed upon, the entire process could take three to four months to complete, the report added.

NSE had originally filed its IPO documents in 2016 and received board and shareholder approvals. However, in 2019, Sebi barred the exchange from accessing capital markets for six months due to the co-location issue. Although that ban has since expired, Sebi is now reportedly imposing fresh listing conditions.