NSE Highlights Regulatory, Technological, and AI Risks Amid IPO Filings Indicating Dependence on Derivatives Business
The National Stock Exchange (NSE) has outlined various risks to its operations in its draft red herring prospectus (DRHP) filed with the Securities and Exchange Board of India (Sebi). These risks include regulatory changes, technology failures, cyberattacks, and challenges related to artificial intelligence. The exchange is preparing for a public issue estimated at around Rs 30,000 crore, which could become India’s largest-ever IPO.
Transaction charges comprised 78.65% of NSE’s operating revenue in FY26, with options trading alone contributing 60.22% of total revenue. The exchange noted that recent measures by Sebi to tighten the equity derivatives framework have already reduced trading activity in both cash and derivatives segments, impacting trading revenues during FY26. NSE warned that further regulatory tightening, increased transaction taxes, shifting investor preferences, or a move towards alternative asset classes could adversely affect trading volumes and profitability.
NSE is also under ongoing regulatory scrutiny, facing inspections, investigations, and enforcement actions from Sebi. The exchange has received various communications from the regulator regarding operations, governance, technology, and compliance issues. In October 2024, NSE settled proceedings related to its Trading Access Point architecture for over Rs 643 crore, and in July 2025, it paid Rs 40.35 crore under a settlement order from regulatory inspection findings. Legal and regulatory proceedings concerning co-location and dark fibre matters remain unresolved, posing potential reputational and financial risks.
Tech failures, cyber risks highlighted
NSE identified technology outages and cybersecurity incidents as significant operational risks due to its fully electronic trading ecosystem. The exchange reported experiencing website outages, market data dissemination issues, login disruptions, and errors related to derivatives information in recent years. A notable incident occurred in February 2021, when a technical outage halted trading across all market segments for over five hours.
On the cybersecurity front, NSE disclosed that its website was targeted by a distributed denial-of-service (DDoS) attack in May 2025, which involved nearly 395 million hits within 11 minutes. Although operations were not significantly affected, access to some webpages slowed during the incident.
AI could create new risks
The exchange has also flagged artificial intelligence and machine learning as emerging risk areas. While AI is increasingly utilized for surveillance, risk management, analytics, and customer service, NSE cautioned that flawed algorithms or poor-quality data could lead to operational failures, financial losses, or regulatory breaches. The draft papers noted that the rise of AI-driven trading strategies might increase market volatility and create new forms of market manipulation that are challenging to detect.
Additionally, NSE warned of potential AI-powered cyberattacks, impersonation through deepfakes, data leakage via third-party AI tools, and vulnerabilities stemming from AI-assisted coding. Evolving regulations surrounding AI could impose stricter compliance obligations related to governance, transparency, and auditability of AI systems in financial markets. The exchange also highlighted concentration risks, noting that its top 10 trading members accounted for 46.78% of operating revenue in FY26. Any disruption in their business could impact the exchange’s volumes and earnings.
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