And then there were two: The NSE IPO

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Hello folks, you're tuned in to Finshots Daily.
In today's episode, we break down the business behind the long-awaited NSE IPO.
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Now back to the story.
After years of delays, regulatory scrutiny and legal hurdles, the National Stock Exchange has filed its Draft Red Herring Prospectus, or DRHP, bringing one of India's most anticipated IPOs a step closer to reality. And on the face of it, the excitement is understandable. NSE sits at the center of India's financial system. It dominates trading volumes across equities and derivatives, benefits from powerful network effects, and generates the kind of profitability most companies can only dream of. Every time you place an order through a broker like Zeroda or Grow, that order is routed to an exchange, typically NSE or BSE. The exchange charges a tiny fee for providing the marketplace where buyers and sellers meet. Individually, those fees are almost negligible, but when billions of trades flow through the platform every year, they add up very quickly. That's why transaction charges remain the lifeblood of NSE's business. In FY26, NSE earned over Rs. 16,600 crore from operations. Nearly Rs. 13,057 crore of that came from transaction charges. In other words, every time trading activity rises, NSE gets a small cut. NSE had a 92.99% share of India's cash market by turnover in FY26. In equity futures, its shares were 99.79%, and in equity options, it was 74.71% by premium turnover. To appreciate how dominant that is, consider BSE.
BSE may be India's oldest exchange and the only listed one today, but when it comes to trading activity, NSE operates in a different league altogether. In several segments, particularly derivatives, it has become the default venue for traders, institutions and market makers. And that matters because liquidity attracts liquidity. Traders naturally gravitate towards the exchange where everyone else is already trading. The result is a powerful network effect that becomes increasingly difficult for competitors to break. This is why exchanges can become exceptional businesses. They don't take credit risks like banks or need factories and warehouses. Once the infrastructure is built, every additional trade can be highly profitable. That shows up in the numbers. NSE's normalized operating abrita margin stood at 76.23% in FY26. Its profit for the year was 10,302 crore rupees. There are very few large companies in India that can convert revenue into profit at that scale. Which raises an interesting question. If NSE is such an extraordinary business, why has it taken so long to list? That's because the exchange isn't simply a venue where buyers and sellers meet anymore. Over three decades, it has evolved into one of India's most important market institutions. In fact, transaction charges still account for nearly 79% of NSE's operating revenue, but the exchange also earns from listing fees, data products, nifty licensing, clearing services and co-location facilities. In short, as India's markets grow, NSE finds more ways to monetize them. The most important shadow over NSE's listing has been the co-location matter. Co-location allows trading firms to play as servers close to the exchange's systems to execute trades faster, a common practice among high-frequency traders. But in NSE's case, allegations arose around preferential access to tick-by-tick data and exchanges' co-location. SEBI issued show-cause notices in 2017 and 2018 In April 2019, SEBI passed orders too. Among other things, it also directed NSE to discourage amounts and barred it from accessing the securities market for six months. The financial impact is visible in its books. NSE's other expenses in FY26 included SEBI settlement fees of 1,431.6 crore rupees, more than double the 670.2 crore rupees in FY25.
Its biggest strength though is its dominance. But that dominance also attracts scrutiny. The larger and more important the exchange becomes, the more closely regulators watch the product it offers, fees it charges and the way it operates. That matters for investors because when you buy NSE, you're not buying a high margin business. You're also buying into a business whose future is closely tied to regulation. SEBI can influence the products that exchanges offer, the charges they levy, the risks they must manage, and the way derivatives trading grows. The DRHP itself points to this clearly. In FY26, NSE's transaction charge revenue fell 4.24%, partly because of lower trading volumes across cash market, equity futures, and equity options. The company links this to regulatory changes. This is important because derivatives, especially options, are central to NSE's business model. Options alone contributed 60.2% of NSE's revenue from operations in FY26. If regulators continue to tighten rules around weekly expiries, contract sizes, margins, or retail participation, NSE's biggest revenue engine could feel the impact. And we've already seen how regulatory changes can alter competitive landscape. Take BSE for instance. While it remains a fraction of NSE's size, FY26 turned out to be a tale of two exchanges. NSE's profit fell 15% year-on-year to 10,302 crore rupees, partly due to tighter derivatives regulations.