NSE IPO is coming to the market with a story to sell: dominant market share, but also the regulatory overhang of increasing oversight on one of the exchange’s strongest business segments — futures and options trading. The exchange earns a large part of its money from transaction charges, and within that, options trading is the biggest contributor.
In FY26, transaction charges made up 78.6% of NSE’s revenue from operations. Options alone contributed Rs 9,997 crore, or 60% of operating revenue, while futures added Rs 1,480 crore, or 9%. Together, the futures and options segment contributed about 69% of operating revenue.
That makes derivatives regulation one of the most important risks for investors evaluating the issue. If options volumes slow down, NSE’s transaction income can come under pressure faster than that of businesses with more diversified revenue streams.
The latest quarter, however, shows that NSE has not yet seen a sharp earnings shock. For the June quarter, the exchange reported revenue of Rs 4,560 crore and EBITDA of Rs 3,594 crore. Revenue from transaction charges stood at Rs 3,623 crore, up from Rs 3,154 crore a year earlier.
But the market-share trend in options is being closely watched. NSE’s options premium-turnover market share fell to 68.48% in Q1 from 75% in FY26 and 97% in FY24.
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NSE MD and CEO Ashish Chauhan has tried to calm this concern. Speaking as the exchange gears up for its IPO, he said NSE’s dependence on weekly options has come down drastically. He also said growth in other businesses would reduce the share of weekly options in the exchange’s revenue mix.
The exchange’s view is that derivatives may remain important, but it is trying to de-risk its revenue base through other businesses.
The regulatory pressure has been building for some time. Since October 2024, Sebi has introduced several measures to cool down speculative trading in equity derivatives. These included limiting weekly index expiries, increasing contract size, collecting option premiums upfront, raising risk margins on expiry day and strengthening intraday monitoring of position limits.
The reason behind the crackdown is retail losses. Sebi’s latest FY26 study found that 87.7% of individual traders in equity derivatives incurred net losses, with aggregate losses of nearly Rs 91,685 crore. Options accounted for most of these losses.
The latest regulatory focus is on expiry-day settlement. After the rollout of the closing auction session, Sebi has floated two options for deciding settlement prices in index and stock derivatives. One option is to blend trades from the last 30 minutes of normal trading with the 10-minute closing auction. The other is to use only the last 30 minutes of normal trading and exclude the closing auction, at least for one year.
For NSE, these changes do not directly remove the derivatives business. But they can change trader behaviour, lower speculative volumes and affect transaction income in the near term.
Paresh Bhagat, Chairman of Mangal Keshav Financial Services, said stricter derivatives rules should not be seen as a major long-term overhang for the IPO.
"Stricter derivative regulations may create a near-term impact on market volumes, particularly because a portion of speculative activity currently taking place in the F&O segment could reduce initially, but not from a long-term perspective," Bhagat said.
He said this could affect trading activity and revenues of exchanges and brokers for a few months. "However, it is important to distinguish between derivative volumes and overall equity-market participation. If regulatory changes make derivatives less attractive for some participants, trading activity is likely to gradually migrate towards the cash equity segment," he said.
According to Bhagat, investors who want to remain in equities are unlikely to completely leave the market only because the cost or structure of derivatives changes. "Therefore, the impact should primarily be viewed as a shift in the composition of market volumes rather than a permanent destruction of market participation," he said.
NSE’s scale still remains its biggest strength. The exchange continues to dominate India’s cash and derivatives markets, and its latest quarterly numbers show strong profitability even after some regulatory changes have already taken effect.
Disclosure: This article has been written by Podishetti Akash, who is not a SEBI-registered Research Analyst or an Investment Adviser. Podishetti Akash and her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclosures here.
