New Delhi: The National Stock Exchange (NSE) has cautioned that regulatory changes, technology failures, cyberattacks, artificial intelligence-related challenges and its heavy reliance on derivatives trading revenue could materially impact its business operations and financial performance.
In its Draft Red Herring Prospectus (DRHP) filed on Wednesday, the country's largest stock exchange disclosed that transaction charges contributed 78.65% of its operating revenue in FY26, with options trading alone accounting for 60.22% of total revenue from operations.
The exchange said recent measures introduced by the Securities and Exchange Board of India (Sebi) to strengthen the equity derivatives framework have already moderated trading activity in both cash and derivatives segments, leading to lower trading revenues during FY26.
NSE warned that any further tightening of regulations, increases in 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 under continuous oversight by Sebi through inspections, audits and enforcement actions.
According to the DRHP, NSE has received several show-cause notices, warning letters, deficiency letters and advisory communications from the market regulator on matters relating to operations, governance, technology and compliance.
The bourse also disclosed that it incurred substantial settlement costs in recent years, including a payment exceeding ₹643 crore in October 2024 in connection with proceedings related to its Trading Access Point (TAP) architecture and network connectivity. It further paid ₹40.35 crore in July 2025 under a settlement order arising from regulatory inspection findings.
The exchange noted that legal and regulatory proceedings, including those related to the co-location and dark fibre matters, remain unresolved and could have financial as well as reputational consequences.
Given its fully electronic trading environment, NSE identified technology disruptions and cybersecurity incidents as major operational risks.
The exchange said it has experienced several technology-related disruptions in recent years, including website outages, glitches in market data dissemination, login failures and errors in derivatives-related information.
It also recalled the February 2021 incident in which technical issues disrupted critical risk management, clearing, settlement and surveillance systems, forcing a trading halt across all market segments for more than five hours.
On the cybersecurity front, NSE revealed that its website was targeted by a high-volume distributed denial-of-service (DDoS) attack in May 2025 involving nearly 395 million hits within just 11 minutes. While the attack did not materially affect trading operations, it slowed access to certain webpages.
The exchange identified artificial intelligence and machine learning as emerging areas of risk.
While AI technologies are increasingly being deployed for surveillance, risk management, analytics and customer service, NSE cautioned that flawed data or algorithms could generate inaccurate, biased or misleading outputs, potentially resulting in operational failures, financial losses or regulatory non-compliance.
The draft document further warned that wider adoption of AI-driven and algorithmic trading strategies by market participants could increase market volatility, trigger sudden price dislocations and facilitate new forms of market manipulation.
"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 DRHP stated.
NSE also warned that AI-powered cyberattacks, deepfake-enabled impersonation, data leakage through third-party AI platforms and vulnerabilities introduced by AI-assisted coding could pose additional operational and cybersecurity challenges.
It added that the evolving regulatory framework governing AI could impose fresh compliance obligations, with regulators potentially introducing new standards on governance, transparency, explainability and auditability of AI systems deployed in financial markets.
The exchange further highlighted concentration risk among trading members, noting that its top 10 trading participants contributed 46.78 per cent of operating revenue in FY26. Any disruption in their operations or decline in trading activity could materially affect overall volumes and earnings.
On Wednesday, NSE filed preliminary papers with Sebi for its long-awaited initial public offering (IPO), estimated to be worth around Rs 30,000 crore and expected to become the largest public issue in the history of the Indian stock market.
The proposed public issue will be entirely an offer for sale (OFS) comprising 14.89 crore shares, with existing shareholders collectively divesting nearly six per cent of their stake.
According to the DRHP, NSE has received Sebi's no-objection certificate for listing its shares, subject to completing the listing process before January 30, 2027.
The filing marks a significant milestone for the exchange, whose IPO plans had remained stalled for nearly a decade because of regulatory hurdles, including the co-location controversy.
