The National Stock Exchange (NSE) has warned prospective investors that regulatory changes, technology failures, cybersecurity threats, and risks tied to artificial intelligence (AI) could materially affect its business and financial performance, as India's largest stock exchange moves ahead with its long-awaited initial public offering (IPO). The disclosures were made in the exchange's draft red herring prospectus (DRHP) filed with the Securities and Exchange Board of India (SEBI).

Heavy Dependence on Derivatives Revenue

Transaction charges accounted for 78.65 per cent of NSE's operating revenue in FY26, with options trading alone contributing 60.22 per cent of total revenue from operations. This concentration makes the exchange's earnings acutely sensitive to shifts in derivatives market activity.

NSE acknowledged that recent SEBI measures to strengthen the equity derivatives framework have already caused a moderation in trading volumes across both cash and derivatives segments, translating into lower trading revenues during FY26. The exchange cautioned that further regulatory tightening, higher transaction taxes, changes in investor behaviour, or a migration toward alternative asset classes could erode volumes and profitability further.

Regulatory Scrutiny and Settlement Costs

The DRHP reveals that NSE operates under extensive and continuous regulatory oversight, including inspections, examinations, and enforcement actions by SEBI. The exchange has received show-cause notices, warning letters, deficiency letters, and advisory communications covering governance, operational, technology, and compliance matters.

Settlement costs have been substantial. In October 2024, NSE paid more than ₹643 crore in connection with proceedings related to its Trading Access Point (TAP) architecture and network connectivity. A further ₹40.35 crore was paid in July 2025 under a settlement order linked to regulatory inspection findings.

Several legal and regulatory proceedings remain unresolved, including matters related to the co-location and dark fibre cases. According to the DRHP, these proceedings could continue to carry reputational and financial implications for the bourse.

Technology Failures and AI-Linked Cyber Risks

Given the fully electronic nature of stock market operations, NSE identified technology failures and cyberattacks as major operational risks. The exchange acknowledged experiencing multiple technology-related incidents in recent years, including website outages, market data dissemination issues, login disruptions, and errors involving derivatives-related information.

Notably, the DRHP flags a new category of threats linked to AI: AI-powered cyberattacks, deepfake-based impersonation, data leaks through third-party AI tools, and vulnerabilities introduced by AI-assisted software development. This marks one of the more detailed AI risk disclosures by a major Indian financial market infrastructure in a public filing.

Concentration Risk Among Top Trading Members

NSE also disclosed significant concentration risk within its client base. The exchange's top 10 trading members accounted for 46.78 per cent of operating revenue in FY26, leaving earnings vulnerable to any disruption or decline in activity among these key participants.

With the DRHP now in the public domain, SEBI's review process will determine the timeline for NSE's listing — an event that has been anticipated by markets for nearly a decade.