The National Stock Exchange (NSE) has warned that regulatory changes, technology failures, cyberattacks and AI-related risks, coupled with its significant dependence on derivatives trading revenues, could materially affect its financial performance and business operations.
In its draft red herring prospectus (DRHP) filed on Wednesday, the country’s largest stock exchange said transaction charges accounted for 78.65 per cent of its operating revenue in FY26, with options trading alone contributing 60.22 per cent of total revenue from operations.
The exchange said recent regulatory measures introduced by the Securities and Exchange Board of India (Sebi) to strengthen the equity derivatives framework have already led to moderation in trading activity across cash and derivatives segments, resulting in lower trading revenues during FY26.
NSE warned that any further tightening of regulations, higher transaction taxes, shifts in investor preferences or migration towards alternative asset classes could adversely affect trading volumes and profitability.
The exchange also highlighted extensive regulatory risks, noting that it remains subject to continuous oversight, inspections and enforcement actions by Sebi.
NSE disclosed that it has received show-cause notices, warning letters, deficiency letters and advisory communications from the market regulator on operational, governance, technology and compliance-related matters.
The bourse said it has incurred substantial settlement costs in recent years, including a payment of more than Rs 643 crore in October 2024 in connection with proceedings relating to its Trading Access Point (TAP) architecture and network connectivity. It also paid Rs 40.35 crore in July 2025 under a settlement order linked to regulatory inspection findings.
NSE further noted that legal and regulatory proceedings, including those related to the co-location and dark fibre matters, remain unresolved and could have reputational and financial implications.
Given the fully electronic nature of trading, the exchange identified technology failures and cybersecurity incidents as key operational risks.
NSE said it has experienced several technology-related issues in recent years, including website outages, market data dissemination glitches, login disruptions and errors in derivatives-related information.
The exchange recalled the February 2021 incident when technical issues affected critical risk management, clearing, settlement and surveillance systems, resulting in a trading halt across all segments for more than five hours.
On cybersecurity, NSE disclosed that its website faced a high-volume distributed denial-of-service (DDoS) attack in May 2025 involving nearly 395 million hits within 11 minutes. Although the incident did not materially affect operations, it slowed access to certain webpages.
The exchange also identified artificial intelligence and machine learning as emerging risk areas.
NSE said while AI is increasingly being deployed for surveillance, risk management, analytics and customer service functions, the technology could generate inaccurate, biased or misleading outputs due to flawed data or algorithms, potentially leading to operational failures, financial losses or regulatory non-compliance.
It further warned that growing adoption of AI-driven and algorithmic trading strategies by market participants could amplify market volatility, trigger sudden price dislocations and create new forms of market manipulation that may be difficult to detect.
“The proliferation of AI-driven and algorithmic trading strategies… may amplify market volatility, contribute to sudden and severe price dislocations, and give rise to new forms of market manipulation that are difficult to detect,” the draft papers noted.
According to the DRHP, AI-powered cyberattacks, deepfake-enabled impersonation, data leakage through third-party AI tools and vulnerabilities introduced by AI-assisted coding could create additional operational and cybersecurity challenges for the exchange.
NSE said the evolving regulatory framework around AI could also increase compliance requirements, with regulators potentially introducing new norms on governance, transparency, explainability and auditability of AI systems used in financial markets.
The exchange also highlighted concentration risks among trading members, noting that its top 10 trading members contributed 46.78 per cent of operating revenue in FY26. Any disruption in their operations or decline in trading activity could affect volumes and earnings.
On Wednesday, NSE filed preliminary papers with Sebi for its much-awaited IPO estimated at Rs 30,000 crore, a share sale that is poised to become the largest public issue in Indian stock market history.
The public issue will be entirely an offer for sale (OFS) of 14.89 crore shares with existing shareholders collectively divesting nearly 6 per cent of the exchange’s stake.
According to the DRHP, NSE has received Sebi’s no-objection certificate for listing its shares, subject to completion of the listing process before January 30, 2027.
The filing marks a major milestone for NSE, whose listing plans had been stalled for nearly a decade due to regulatory hurdles, including the co-location controversy.
