NSE IPO: Unpacking Surge In Trading Of Unlisted Shares Before Going Public

The listing momentum on Dalal Street has again started gathering steam. Among the companies yet to be listed, the National Stock Exchange or NSE has been one of the most sought shares to be traded in the unlisted space.

The fervour exists because of its dominant share as the largest equity exchange in India.

Based on the total value of shares traded, NSE's market share in the fiscal year ended March 31, 2025, was 93.6%, and it has only grown.

The demand for the exchange's unlisted shares has seen a notable surge since March, after it allowed electronic settlement of shares. In May, the total shareholder base expanded past the one lakh mark.

The increase its shareholder base was also enabled by the increase in number of shares available, as the board approved a bonus issue, allotting four more shares for each share held.

Not only did this lower the per-share price, making smaller investments easier, it also increased the number of shares available to be traded.

While NSE continues to hold the dominant share across trading segments, it has lost some share in the equity options space, which is the most profitable segment. As of FY25 end, its share was 87.4%, notably below 96.9% which it commanded during the year before.

The compounded growth in its revenue and profits also came in lower than BSE over the last two years.

NSE's revenues grew at a compounded annual growth rate of 13.9% between FY25 and FY23, while BSE's revenue grew at a CAGR of 90.4%

As trading in derivatives, especially options, grew across the market, improving operational efficiency for both exchanges, it improved faster for BSE, though NSE's operating margins remain higher.

At the current price for which NSE shares are being traded in the grey markets, the price-to-earnings valuation multiple is lower for NSE at 43.7 times, while for BSE, it is higher at 74 times.

Traditionally, trading in the unlisted space has been only done by high net worth individuals, enabled by wealth management firms. This is because such transactions cannot be done via brokers, where listed transactions take place. Trading in the grey markets is directly done between agreed parties, with the transfer of the dematerialised shares being enabled via depositories.

This carries its own unique risk. When exchanges enable investors to make transactions in listed space, the exchange ensures the trades go through, and the shares are transferred from the seller's demat account to the buyer's account.

To make sure investors are protected against any errors in this process, the exchanges are required to maintain a Settlement Guarantee Fund, as mandated by the markets regulator Securities and Exchange Board of India.

Such a guarantee cannot be given when trading in unlisted shares, as there is no exchange acting as an intermediary to enable the transaction, but a direct deal struck between buyers and sellers.

While trading in unlisted shares provides investors with some advantages, such as potentially getting a better value or access to sectors with little representation in the listed space, the benefits come with their own risks.

Investing before the IPO does not guarantee future profits, and existing investors are required to adhere to a lock-in period post the listing, before they can sell the shares they already hold. This does not apply to those investors who applied for the initial public offering and were allotted shares.

Listings can also get delayed due to regulatory overhangs, which require the company to update their disclosures before being allowed to list on the exchanges.

It is for these reasons that the Indian market regulator, SEBI, recommends against transacting in the unlisted space due to the risks present.