NSE which holds the distinction of being one of the world’s largest exchanges was incorporated in 1992 and has its registered office located in Mumbai, Maharashtra. It provides a platform to companies to raise capital and for investors to participate in the stock market. NSE launched electronic screen-based trading in 1994, derivatives trading (in the form of index futures), and internet trading in 2000, which were each the first of its kind in India. NSE has a fully integrated business model comprising our exchange listings, trading services, clearing and settlement services, indices, market data feeds, technology solutions, and financial education offerings. NSE also oversees compliance by trading and clearing members and listed companies with the rules and regulations of the exchange.

A comprehensive guide to buying NSE Unlisted Shares:

 

First Stage: Name Approval and Paperwork Drafting

 

KYC Document Submission: The first step involves providing KYC (Know Your Customer) and fit and proper documents, including a Copy of Client Master List (CML), PAN card, Aadhar card, and a cancelled cheque.

Drafting Paperwork: NSE Shares Transfer Process is presently a complex exercise and it involves getting approval from NSE Shares Transfer Committee. The Approval Comes in 2 stage ( Stage 1 & Stage 2). It Involves several agreements On Rs 500 stamp paper each by buyer and seller.

Submission to NSE: Once the paperwork is finalized, we submit both buyers & seller Documents  to the NSE for clearance.  Stage 1 Approval have been Streamlined and can be procured within a week if all documents are provided and no objection raised by NSE.

The checks are to comply with the shareholding criteria norms as follows:

1.     Buyer is a Foreign National (cap of 50% of overall shareholding)

2.     Buyer is a existing trading member of NSE (cap of 50% of overall shareholding)

 

Second Stage: Verification and Finalization

 

Client Confirmation: The client must also provide a letter confirming their agreement to proceed with the purchase of the NSE unlisted shares.

Verification Letter:

The Buyer will have to get a letter from his DP On the DP's letter head confirming the Demat Details and the transaction. Additionally, a letter from the client themselves may also be required in some cases.

Submission and Processing: Here to give the final consent NSE can take anywhere between 1  to 6 months. After, which share are credited to buyer Demat account.

 

Important Considerations

 

Timeline: The entire process of buying NSE unlisted shares can take up to 3-7 months, depending on various factors such as document verification and regulatory approvals.

Documentation Charges: Clients should be aware of documentation charges, which typically include stamp paper costs and other necessary document fees. These charges are essential for facilitating the NSE share transfer process and ensuring compliance with legal requirements.

Remarks- All the payments must be completed before going ahead with 2nd stage documents.

 

NRI Clients - Shares cannot be delivered to an NRI-repatriable account, nor can money be accepted from an NRE account. Shares can only be delivered to non-repatriable demat accounts, and only funds from NRO bank accounts will be accepted.

NSE was incorporated in 1992. It was recognised as a stock exchange by SEBI in April 1993 and commenced operations in 1994 with the launch of the wholesale debt market, followed shortly after by the launch of the cash market segment.

1993 : NSE recognized as exchange in India

1994 : Screen based trading introduced by NSE

2000 : Derivatives trading in India was offered through launch of index futures by NSE

2002 : ETFs in India were introduced by NSE

2008 : Currency derivatives were introduced in India by NSE

2011 : Commenced trading in index futures and options contracts on the FTSE Index

2016 : Promoted NSE IFSC, the international stock exchange in India’s first IFSC SEZ at gift city Gandhinagar

2021 : NSE registered investor base surpasses 5 crore unique investors

Landscape of exchanges in India

NSE’s market share in cash equities has grown consistently over the past two decades – from 63% in FY02 to 81% in FY12 and further to 92% in FY22. Introduction of co-location facilities in 2009 led to a sharp spike in its market share over the ensuing few years due to increased algorithmic (algo) trading.

Revenue Model

Unlike global exchanges, NSE have high dependency on transaction charges: while BSE’s dependence is low due to poor market share.

Transaction Charges

• Charges based on turnover under various categories
• Linked to market activity levels and household savings and investments

Treasury income on clearing and settlement funds

• Revenue from clearing corporation
• Interoperability related income
• interest income from SGF gets added to the SGF account
• Linked to interest rates and to an extent market activity since that would lead to more margin being deposited by members

Tech and information solutions

• Colocation, Network, Platform and terminal charges
• Primarily consists of charges recovered from members for network connectivity

Services to corporates

·      Listing fees

·      Book building fees

·      Mostly derived from listing income that is not impacted by market activity

·      Book Building is linked to primary fund raising

Data dissemination fees

·      Live Data feeds to third party aggregators

·      Historical data for back testing

·      Impacted primarily due to level of subscriptions and revision in pricing policies

Income from Investments and deposits

·      Income from own cash (not clients money)

·      Linked to investment yields

Other Income

·      Recurring in Nature

·      Mostly derived from rent and training institution, etc

Under penetration of capital markets

More corporates expected to tap the financial markets.

NSE winning the client race

Demat accounts have increased fivefold from 2.2 crores in FY14 to 11.3 crores currently. In contrast, NSE now has 3.4 crores active customers, up from 40 lakhs in FY14—a nearly 9x increase.

NSE gaining market share

NSE holds a 93% market share in cash segment and almost 99% market share in the F&O segment.

NSE Q2 FY25'S Financial Highlight

• Total Income increased by 24.8%, reflecting strong revenue growth.

• Operating Revenue grew by 23.5%, showing solid operational performance.

• EBITDA rose by 43.0%, indicating enhanced profitability and cost efficiency.

• PAT surged by 57.0%, underscoring impressive bottom-line performance

 Total Expenses decreased to 1303 Cr as compared to 1420 Cr in Q2 .
NSE continues to be the world’s largest derivatives exchange for 5th consecutive year.

Market Share of NSE

NSE Q1 FY25'S Financial Highlight

Particulars (in Cr.)	Q1 FY25	Q1 FY24
Total Revenue	4950	3357
EBITDA	3106	2234
PAT	2567	1844

• In 1st quarter of FY25 NSE's sales grew by 47% compared to same quarter of the previous year.
• With 91% share, operating revenue holds the major chunk of the total revenue.
• Despite of yearly growth NSE has witnessed ~2.65% degrowth in sales from the last quarter.
• This degrowth could be accounted for NSE's lost market share of ~3% in the Equity Options compared to the last quarter.
• Despite of a decrease in the revenue from last quarter NSE psoted ~3% growth in PAT from the last quarter. EPS also increased to 51.86 from 50.25 of the last quarter.
• The company has submitted its application to SEBI for seeking approval for altering their Memorandum of Association (MOA) for increasing their authorised share capital.
• In the quarter NSE has contributed ₹587.34 Cr towards Core SGF (₹574 Cr in Q4). The total core SGF now stands at ₹9,130.28 Cr.

NSE Q1 FY25 Standalone Segmental Revenue

Revenue Drivers (in Cr.)	Q1 FY25	Q1 FY24	Y-o-Y Growth
Transaction Charges	3623	2525	43.49%
Treasury Income	340	303	12.21%
Data center & Connectivity Charges	260	194	34.02%
Listing Services	67	45	48.89%

Market Share of NSE after Q1 FY25

Financial Insights

IN FY24 NSE’s revenue has grown at a CAGR of 28% whereas PAT has grew by 13%.

Particulars (in Cr.)	FY24	FY23	FY22
Total Revenue	16,352.00	12,765.00	8,874.00
EBITDA	11611	9428	6,499.26
PAT	8306	7356	5,198.29
EPS	167.80	148.61	105.02
Dividend	90	80	42

                                                                                       

Dividend: NSE has announced a final dividend of Rs. 90/share (pre bonus).

Bonus Issue: Along with the dividend the company has also announced bonus issue of 4 shares for every 1 share.

Segment wise revenue split

Revenue increased by 59% in FY-23 from FY-22 and PAT increased by 41% in FY-23.

                                                                                                       

Particulars	FY-23	FY-22
Trading Services	10173	6965
Colocation Charges	614	433
Data feed services	273	225
Listing services	180	184
Index Licensing Services	150	116
Strategic Investments	328	256
Other Segments	1047	695
Total	12765	8874

A deep-dive on surge in options volume:

Equity options Average daily volume surged 25x over the last 5 years to INR 152.4tn. This surge in options was due to the following factors:

• The shift towards options trading accelerated when SEBI in 2020 put restriction on the amount of leverage a broker can offer (Peak Margin Rule). Earlier, brokers offered leverage up to 100x. However, SEBI reduced this leverage to 5X in 2021. Reduction in leverage caused volume to shift from intraday trading as well as futures to options.
• Post-pandemic rise in demat accounts and push by many influencers on the internet has also aided options volume.

NSE has a near-100% market share in equity derivatives. Equity option and futures accounted for 76% and 12% of FY23 transaction income.

Deep Dive into the transaction Charges

Transaction income the dominant revenue driver for NSE -

For NSE, transaction income accounts for a large share of total revenue (including clearing revenue) - 79% on average over FY21-23. The share is lower in case of BSE on account of lower volume. Transaction income consists of fee paid by a broker basis the product and size of the trade. Both NSE and BSE maintain a fee structure across different product segments based on traded value. NSE offers a competitive fee structure in case of the cash segment. However, in derivatives, NSE’s transaction charges are significantly higher than that of BSE, given its market dominance.

Stable fee structure - Exchanges ensure a stable fee structure across product segments. However, NSE recently revised its charges by rolling back the 6% increase in transaction charges on equity cash and derivatives segment it took during Dec’20. The previous increase in charges was primarily due to its requirement to build a corpus of INR 15 bn for the Investor Protection Fund. On the other hand, BSE revised its charges upwards in Dec’22.

NSE India Conference Call Takeaways FY-24

·      NSE is the largest exchange in the world in terms of number of contracts for the 5th time and is 3rd in the cash segment.

·      Volumes at the Gift city continue to grow at a healthy pace and reached INR 3.5 trillion contracts of open interest.

·      In the clearing segment, NSE has 93% market share in cash segment, 96% derivatives in derivatives segment and 85% in currency segment.

·      The company has plans to issue bonus shares and will continue to give better dividends.

·      Transfer of shares take 4-5 months as the process is different from listed player. NSE is trying to bring in automation in transfer process and reduce this time period.

NSE Gift City Opportunities

Gujarat International Finance Tec-City (GIFT) can be a huge potential opportunity.

NSE Backed by Marquee Investors

Shareholding pattern as of FY-23

Name of the shareholder	Shareholding percentage
LIC	10.72
Aranda Investments Ltd	5
Stock Holding Corporation of India Ltd	4.44
SBI Capital Markets Ltd	4.33
Veracity Investments Ltd	3.93
SBI	3.23
Crown Capital Ltd	3.17
PI Opportunities Fund	3.00
TA Asia Pacific Acquisitions Ltd	2.33
MS Strategic Ltd	2.30

Peer Comparison

The NSE Colocation Saga – An Hindrance on its road to IPO

The NSE colocation case refers to a scandal involving allegations of unfair access to market data and trading systems at the NSE. Colocation services allow traders to place their servers in close proximity to the exchange's servers, reducing latency and potentially providing an advantage in high-frequency trading.

NSE was alleged that certain high-frequency traders were given preferential access to NSE's trading systems, potentially allowing them to gain an unfair advantage over other market participants. These allegations raised concerns about market integrity and fairness.

SEBI launched an investigation into the matter, were the investigation focused on whether NSE officials had provided preferential treatment to certain brokers, potentially allowing them to access market data faster than others. The investigation has been ongoing for several years, and there have been various developments and legal proceedings related to the case.

2022: Court sends Chitra Ramkrishna to judicial custody under the money laundering act.

2023 : SC directed the market regulator to refund the NSE Rs 300 crore deposited under disgorgement orders.

IPO Plans

In December 2016, NSE filed for its IPO (size : 10000 crore) which was a complete OFS by the existing shareholders. However the IPO was called off due to the allegations of some brokers allegedly getting preferential access to its algorithmic trading systems.

In January 2020, the NSE announced that it had initiated discussions with Sebi regarding its IPO and expressed optimism about unveiling the public issue by September, pending necessary approvals. 

The listing of NSE has been postponed for several years due to a series of corporate governance issues. These concerns include the involvement of its former chief executive officer Chitra Ramakrishna in the 2015 co-location scam and problems related to various technological failures.

Valuations

NSE at the current market price of 4500, is trading at a discount of almost 50% from its listed peer BSE.

Particulars	NSE	BSE
CMP (1st April, 2024)	4500	2700
Market Cap	222750 Crores	36575 Crores
EPS (TTM)	157.68	56.35
P/E (TTM)	29	48
P/S	17	40

Chicago Mercantile Exchange (CME) which is one of the largest and most influential derivatives exchanges globally, has a similar revenue model like NSE and is operating on similar margins as NSE. CME which is an exchange of such a saturated market like US is trading at a P/S ratio 14 currently.

NSE Unlisted Share Price Journey

NSE Unlisted Shares were introduced into the unlisted market in March 2021 at a price of 1700 per share and the stock then made a high of 4500 in November 2021. Since then the stock underwent into a correction and made a low of 3000 per share at December 2022. NSE Unlisted Shares rallied to a share price of 4850 per share in March 2024 which is also the all-time high of the stock currently.

Stake Sell by Fairfax India

During the fourth quarter of 2023 and the first quarter of 2024 Fairfax India entered into agreements to sell its equity interest in NSE for gross proceeds of approximately $189 million (15.7 billion Indian rupees). The original cost of the company’s investment in NSE was $26.8 million.

On January 29, 2024 the company completed one of the sales and received gross proceeds of $132.3 million (11.0 billion Indian rupees).

The remaining sales are subject to customary closing conditions and are expected to be completed in the first quarter of 2024.

At December 31, 2023 there were 105,398,509 subordinate voting shares and 30,000,000 multiple voting shares outstanding.

NSE FY24 Highlights