- Sebi will review NSE's proposal to trade its shares on its own platform if submitted
- Current rules prevent stock exchanges from listing on their own platforms
- NSE shares are expected to list on BSE, with PTT as a possible trading route on NSE
Securities and Exchange Board of India (SEBI) Chairman Tuhin Kanta Pandey said the regulator will assess the National Stock Exchange's (NSE) proposal to allow its shares to trade on its own platform if and when such a proposal is received.
On the possibility of permitting NSE shares to trade on NSE through the permitted-to-trade (PTT) mechanism, Pandey said, “No proposal received yet from NSE, we will assess when it comes.” He also indicated that the market regulator is close to approving NSE's proposed initial public offering (IPO).
The development comes as NSE moves closer to its much-awaited public listing and raises a key question over where the exchange's own shares could be traded.
Under current regulations, stock exchanges cannot list themselves on their own platforms. This means NSE's shares are expected to list on BSE. However, market participants have pointed to the PTT mechanism as a possible route for NSE shares to also trade on NSE after the listing. PTT allows a company listed on one stock exchange to have its shares traded on another exchange without undertaking a fresh listing on the second platform.
The proposed arrangement would effectively allow NSE to list on BSE while potentially permitting its shares to trade on NSE. Sandeep Parekh, partner at Finsec Law Advisors, said such a move would require SEBI approval and would not happen automatically.
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“It will have to go through SEBI,” Parekh said, adding that the regulator would need to evaluate the advantages and disadvantages before allowing such an arrangement.
One of the key concerns would be the inherent conflict involved in an exchange allowing trading in its own shares. Parekh said additional scrutiny would be expected, although he did not see a fundamental obstacle to the proposal.
NSE's significantly deeper liquidity could make its platform the natural venue for trading its own shares. However, this could also create complications around price discovery. If a majority of NSE share trading were to shift to NSE, the BSE could potentially see lower trading volumes in the stock despite being its primary listing venue.
Parekh said this is one of the key issues SEBI would have to consider, particularly as the regulator would not want to effectively favour one exchange over another.
NSE's IPO has already received a no-objection certificate (NOC) from SEBI, and the regulator is now expected to approve the exchange's draft red herring prospectus (DRHP).
As per its DRHP, the IPO is entirely an offer for sale, with existing shareholders proposing to sell up to 14.89 crore equity shares, representing nearly 6% of NSE's paid-up equity capital. NSE has appointed 20 banks for the IPO, including Kotak Mahindra Capital, JM Financial, Morgan Stanley, HSBC and Citigroup.
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