Fog Around NSE IPO Clears: SEBI Softens Two Key Stances, Major Hurdles Fade

The Initial Public Offering of the National Stock Exchange has been the subject of much discourse in the past few years, however, it seems that the fog around it is finally becoming thinner, especially since the market regulator has changed its stance on two major issues- the demerger of clearing corporations from their parent exchanges and a softer stance for allowing listing of companies with a large public float.

In its 210th board meeting, Tuhin Kanta Pandey, the Chairperson of Securities and Exchange Board of India, cleared the air around the issue of clearing corp demerger.

He mentioned that the proposal to structurally demerge the clearing corps from the parent exchanges is not feasible and has been put on hold. In fact, a new working group has been formed to look into how the clearing corps are funded.

Notably, as reported previously by NDTV Profit, SEBI, on Feb 28, had raised concerns in a letter about possible conflicts of interest linked to the NSEs significant ownership stake in its clearing subsidiary, NSE Clearing Ltd (NCL). However, the issue has been put to rest with the formulation of a new working group.

Another stance that the market regulator has changed is how it looks at the listing approvals for entities with large public floats, as per the people in the know.

Earlier, it was seen that the regulator was hesitant in giving IPO approvals to companies that had high public shareholding before listing as this was seen to be in contravention of company law provisions. However, this seems to have changed as the regulator recently gave nods to HDB Financial Service, Hero FinCorp and others who already had a high public shareholding.

In fact, India's leading bourse, the National Stock Exchange, has one of the largest floats with almost 1 lakh public shareholders.

The Companies Act says that a company can issue its equity to not more than 200 investors. However, it is silent on the scenario in which these 200 investors sell or transfer it to further investors. Hence, the number of unique investors breaches the 200 limit in several cases.

Earlier, SEBI was of the opinion that these cases are deemed public issues, people in the know told Profit.

Since the disclosure norms and restrictions on listed companies are relatively very high compared to unlisted companies, this way of issuing equity to 200 investors and then further selling of the shares to more investors was believed to be a way of circumventing the Companies Act and SEBI regulations, one of the persons quoted above mentioned on the condition of anonymity.

So, for that reason, the IPOs of such high public holding companies were kept on hold, they added.

Profit was further told that under the new leadership, the view has changed.

The Companies Act does not prohibit these 200 investors from transferring these units to any other investor, sources privy to the issue explained. If the company is compliant in issuing these units to less than 200 investors, then we will process these IPOs. In this regard, an internal policy has been made, they said.

The Fight So Far

The exchange had filed its IPO prospectus back in 2016.

In a letter dated Nov. 21, 2016, the markets regulator approved the listing of equity shares on a recognised stock exchange, contingent upon compliance with applicable regulations and SEBI circulars. The offer received approval from NSE's board of directors and shareholders through resolutions passed on Oct. 4, 2016, and Nov. 10, 2016, respectively.

During that period, NSE, its directors, and its group companies were not barred from accessing or operating in capital markets by SEBI or any other authorities.

However, in a 2019 order, SEBI barred NSE from accessing the securities market for six months due to complaints related to its co-location facilities. Although the Securities Appellate Tribunal modified financial penalties in January 2023, it upheld the market access restriction.

Subsequently, NSE's 2022-2023 annual report emphasised that the six-month prohibition period had ended and that it awaited SEBI's further approval for listing. News articles in December 2023 suggested SEBI had imposed additional conditions for NSE's IPO approval, including maintaining a glitch-free year, enhancing technological infrastructure, improving corporate governance, and resolving pending legal matters.

Notably, the NSE co-location case was settled in October 2024 for a whopping amount of Rs 643 crore.