NSE Warns Of Regulatory And AI Risks In IPO Filing

India’s largest stock exchange, the National Stock Exchange (NSE), has laid out a long list of risks investors should know about before its much-awaited initial public offering (IPO).

In its draft red herring prospectus (DRHP), filed ahead of a proposed ₹30,000 crore public issue, NSE said regulatory changes, cyberattacks, technology failures, legal proceedings and even artificial intelligence-related risks could impact its business and financial performance.

The IPO is widely expected to be the largest in Indian stock market history.

What Are The Main Risks The NSE Is Concerned About?

The NSE has raised a concern regarding its heavy dependency on derivatives trading. According to the filing, transaction charges contributed 78.65% of operating revenue in FY26. More importantly, options trading alone accounted for 60.22% of total revenue from operations.

Recent measures introduced by SEBI to tighten the equity derivatives market have already slowed trading activity across both cash and derivatives segments. As a result, trading revenues moderated during FY26.

It also pointed to significant settlement costs in recent years. It paid over ₹643 crore in October 2024 in connection with proceedings linked to its Trading Access Point (TAP) architecture and network connectivity. Another ₹40.35 crore settlement was paid in July 2025 following regulatory inspection findings.

Another risk highlighted in the filing relates to broker dependence. The NSE said its top 10 trading members contributed 46.78% of operating revenue in FY26. A reduction in their business or a decrease in trading activity by their customers could directly impact the company's earnings.

What Are The NSE’s Technology-Related Concerns?

Because all trading on the NSE happens electronically, even a short disruption can create major problems. The exchange said it has faced multiple technology-related incidents in recent years, including website outages, login issues and market data glitches.

One of the most significant incidents occurred in February 2021, when technical issues affected critical systems including clearing, settlement, surveillance and risk management. Trading across all segments was halted for more than five hours.

It also warned that AI systems can generate inaccurate or biased outputs if trained on flawed data. Such errors could lead to financial losses, operational disruptions or regulatory violations.

The exchange further noted that AI-driven and algorithmic trading strategies could increase market volatility, trigger sharp price swings and create new forms of market manipulation that are harder to detect.

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The DRHP filing comes as NSE moves closer to a public listing after nearly a decade of delays. The NSE’s IPO will be entirely an offer for sale (OFS) comprising 14.89 crore shares, with existing shareholders selling nearly 6% of the exchange's equity. It has already received SEBI’s no-objection certificate for listing, provided the process is completed before 30 January 2027.

Sources:

The Economic Times