The ongoing discussions regarding the reduction of stock exchanges’ stakes in clearing corporations (CCs) are significantly hindering the National Stock Exchange’s (NSE) plans for listing, according to Tuhin Kanta Pandey, the chairperson of the Securities and Exchange Board of India (Sebi). He emphasized that several pressing issues, including governance, technology, and legal matters, also require immediate attention before the NSE can move forward with its Initial Public Offering (IPO).

Key Issues Delaying NSE’s Listing

In November 2024, Sebi introduced a pivotal proposal aimed at enhancing the independence of clearing corporations. This initiative is designed to diminish the concentration of power currently held by stock exchanges over these entities. According to the proposal:

• 49% of a clearing corporation’s shares could be allocated to existing shareholders of the parent exchange, while the exchange would maintain a 51% stake.
• Over time, the exchange would gradually reduce its ownership to below 15%, potentially through share sales to other exchanges.

Currently, regulations mandate that clearing corporations must be predominantly owned—at least 51%—by one or more stock exchanges.

Concerns Over Potential Conflicts of Interest

In a letter dated February 28, Sebi expressed its apprehensions regarding the NSE’s dominant ownership of NSE Clearing Ltd (NCL), highlighting the need for these clearing entities to operate independently. Sebi emphasized that “clearing corporations need to be perceived as truly independent from exchanges, particularly in interoperable segments,” which is essential for ensuring a fair playing field among market infrastructure institutions (MIIs).

To address these concerns, Sebi has requested the NSE to provide a comprehensive roadmap detailing how it plans to tackle these issues before any further evaluation of its IPO proposal.

NSE’s Position on Ownership Regulations

In its response on March 28, the NSE stated that its ownership of NCL aligns with existing regulations, specifically the Stock Exchanges and Clearing Corporations Regulations. The exchange acknowledged that any potential changes to CC ownership laws could be highlighted as a risk factor in its draft red herring prospectus (DRHP). Furthermore, the NSE suggested that divesting from NCL could enhance its reserves, eliminating the need for capital injections into the clearing corporation.

Next Steps for NSE

Tuhin Kanta Pandey indicated that ongoing communications have taken place, stating, “We have received letters, and responses are being reviewed. We must analyze them and take appropriate actions to progress.”

In the broader context, there are currently two clearing corporations operating within the equity market—one associated with the Bombay Stock Exchange (BSE) and the other with the NSE. Additionally, other clearing corporations serve the commodity and debt markets. These entities play a crucial role in confirming, settling, and delivering transactions for exchanges.

As the NSE navigates these regulatory challenges, the outcome could reshape the future of its IPO and the overall landscape of the Indian stock market.