Mumbai: India’s largest initial public offering (IPO) in the past seven years seems to have trouble getting off the ground.

The National Stock Exchange (NSE) may have to re-file papers for its Rs10,000-crore IPO after resolving the issue of some brokers allegedly getting preferential access to its algorithmic trading systems, a development that could push the share sale to next year.

The case which forced India’s largest stock exchange to conduct a forensic audit and brought its current and former officials under the lens is a “serious matter", Securities and Exchange Board of India (Sebi) chairman Ajay Tyagi said in New Delhi on Monday.

Resolving the issue could delay the IPO, the largest since state-owned Coal India Ltd raised Rs15,200 crore in 2010.

“If I was an issuer, I will see that these are addressed and then only go back to draft red herring prospectus (DRHP)," Tyagi said on the sidelines of an event organized by the Standing Conference of Public Enterprises, news agency PTI reported.

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Separately, a person aware of the matter said Sebi was “not keen" at looking at the NSE IPO until the unfair access issues are resolved. “In a letter on 31 May, Sebi asked NSE to stop working on the IPO," this person added, asking not to be identified.

“The issue is far from resolved as Sebi is yet to appoint a forensic auditor to look into the aspects of collusion and ill-gotten gains. Sebi is also engaging with shareholders of the exchange and the government."

In 2015, a whistleblower alerted Sebi to some brokers who had placed their servers in the same location as NSE’s, getting faster access to its trading systems.

A Sebi committee investigated the matter and found NSE’s systems were prone to manipulation.

In September 2016, Sebi ordered NSE to conduct a forensic audit of its systems and place revenues from its co-location services in an escrow account.

In December, NSE filed its draft IPO papers, mentioning risks from the unfair access issue. It planned to open the IPO at the start of the April-June quarter after resolving the unfair access allegations. Till March 2017, NSE has transferred Rs376 crore to the escrow account.

After a 21 June Sebi board meeting, chairman Tyagi said the regulator had started investigating possible connivance between NSE employees and brokers, and unfair gains for brokers.

A person familiar with the exchange’s thinking said NSE is not expecting any delay in its IPO. “ NSE is hopeful these issues will be resolved and IPO will be launched before the end of the year," this person said, asking not to be identified.

An NSE spokesperson did not respond to an email seeking comment.

Twenty-seven NSE shareholders plan to sell their shares in the IPO, adding up to a 22.5% stake. The shares these shareholders are willing to offload have been kept in an escrow account.

According to one NSE shareholder, who spoke on condition of anonymity, the timeline of the IPO would depend on how quickly NSE responds to Sebi’s concerns and how soon the regulator looks at the IPO papers.

“The DRHP was filed in December 2016 and shares of shareholders who tendered their holdings were kept in an escrow for a year. If the IPO is not launched till the end of this year, NSE will have to re-start the process. It may need to again ask shareholders to tender their shares or write to shareholders stating that their shares would be kept in the escrow beyond the end of the year," this person added.

“The issue is mostly around the resolution of unfair access issue," said a second shareholder, who, too, did not want to be named. But as long as the bourse is still talking about an IPO, “a delay is not a big concern", this person added.

For a speedier resolution of the issue, NSE is consulting with AZB and Partners and independent counsel Somasekhar Sundaresan to arrive at terms under a so-called consent process. This is a regulatory mechanism which would allow NSE to settle the allegations for a penalty without admission of guilt.

Consent proceedings started after Sebi issued notices on 22 May to NSE and 14 of its directors alleging that they failed in their fiduciary duty and did not cooperate with the investigations.

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