NSE IPO is selling a monopoly. Investors should watch the referee

NSE handles about 93% of India's cash equity turnover and 99.79% of equity futures. It's the world's largest derivatives exchange by contract volume. When it lists later this month, it will list on BSE, as India forbids an exchange from being the venue for its own shares.

An exchange is not an ordinary company. But investors are about to be sold an 'ordinary company' story: monopoly margins, structural growth, India's rise, etc. So, before taking the plunge, it's worth knowing what 30 yrs of global evidence reveals.

Also Read: NSE cuts IPO price range, giving up shot at India’s top listing


An exchange is 2 businesses welded together:

Toll booth: Trades happen, NSE clips a fee, and marginal cost of the millionth trade is roughly zero. NSE's FY26 numbers show the shape of it: ₹16,601 cr in operating revenue, ₹10,302 cr in net profit, and a reported operating Ebitda margin of 66.85% - 76.23% on the normalised basis the prospectus prefers. Either way, a superb business.

Referee: NSE writes listing rules, runs surveillance, disciplines members. It's a front-line regulator wearing a company's clothes, a cost centre inside a profit machine. Once shareholders arrive demanding quarterly growth, it becomes the cost easiest to trim. Nobody notices a surveillance budget until something breaks.

You are buying both. The prospectus prices the first.

Demutualisation began with Stockholm Stock Exchange (SSE) in 1993. In 1998, Australian Securities Exchange (ASX) became the first exchange to demutualise and list on its own market, a manoeuvre nobody has been comfortable with since. In the mid-1990s, roughly 90% of World Federation of Exchanges members were mutuals. By 2002, 63% had converted.

Why the stampede? Because of e-trading. Oliver Hart and John Moore mapped it in their 1998 paper, 'Cooperatives vs Outside Ownership': member-owned bodies underinvest, favouring cheap current fees over infrastructure whose future benefits must be shared with new entrants. Exchanges facing a tech arms race fit the model.

Demutualisation unlocked capital and gave exchanges listed paper to buy things with. ICE and NYSE-Euronext roll-ups were paid for in shares that did not exist under mutual ownership. That half of the story worked. The refereeing half has a bleaker record.

John Carson's 2003 World Bank study across Asian, North American and European jurisdictions, found that going for-profit creates new and larger conflicts than the mutual model. IMF and International Organisation of Securities Commissions (IOSCO) would reiterate this.

In 2025, a Review of Accounting Studies study found that monitoring of listed firms measurably declines after demutualisation. Then comes the bit Indian investors should read twice - that the above finding holds only among weak regulatory regimes. Where the country-level regulator is strong and independent, demutualisation does not degrade oversight. Where it isn't, it does.

The correct question is not whether NSE can police itself after listing - it cannot - but whether Sebi is strong enough to pick up what NSE puts down. That is the single variable the academic literature says decides the outcome.

Rest of the evidence is mixed enough to puncture the sales pitch. Serifsoy's 2008 panel of 28 exchanges found demutualised, outsider-owned exchanges show no clear efficiency or productivity edge. Liquidity improves post-demutualisation, but the gain concentrates in developed markets and diversified exchanges.

Here are 3 things specific to this offer:

Funding an exit: This is 100% offer for sale (OFS). NSE receives nothing. Note also the tempo. Sellers are pushing for this month, and the exchange has waited a decade to get here.

Also Read: Are NSE unlisted shareholders staring at losses? Here's what IPO pricing indicates

A motivated seller concedes price to institutions who can credibly walk, retail applicants are price-takers on whatever the anchor book settles. With a fixed rupee target and 20 banks carrying placement obligations, a deal in a hurry can just as easily be resolved by manufacturing demand as by cutting the price. Watch the anchor book, not the grey market premium.

Co-location file just closed, expensively NSE settled the co-location and dark-fibre matters for ₹1,491.21 cr, the largest settlement in Sebi's history. Whatever your view of the merits, it's the literature's warning: a dominant exchange whose access-control function came under suspicion of bending commercially, before any shareholder was in the room.

The regulator wants to shrink your best product: Equity options alone were 60.22% of NSE's operating revenue in FY26, transaction charges were 78.65%. Meanwhile, a Sebi August 2026 study found roughly 91% of individual traders in equity derivatives lost money during FY26.

Sebi has capped weekly expiries and raised lot sizes precisely to cool this. FY26 revenue fell 3%, and profit 15%. That's a regulator actively working against 60% of your revenue line, and it partly explains why NSE is selling now.

None of this says avoid it. Monopoly exchanges with data and clearing franchises - ICE, HKEX, CME - have made shareholders rich, and NSE's dominance exceeds what most of them had at listing.

But the key story here isn't the listing-day pop. It's whether Sebi keeps the regulatory function funded and independent once NSE's board starts answering to public shareholders with a growth mandate. 30 yrs of global evidence says that's the part that slips, not the part anyone announces. Which makes the price band the only question that matters. And the one nobody in that syndicate of 20 is being paid to answer conservatively.

The writer is former executive director, Nomura