India's markets regulator, the Securities and Exchange Board of India (SEBI), has taken a significant step forward. On Thursday, Chairman Tuhin Kanta Pandey announced that SEBI has granted in-principle approval to the National Stock Exchange's settlement applications. These applications address the co-location and dark fibre cases that have lingered for years.
What This Approval Means for NSE
This development carries substantial implications for the National Stock Exchange. The in-principle nod from SEBI is likely to accelerate NSE's initial public offering application. The IPO has been pending with the regulator for an extended period, awaiting resolution of these regulatory matters.
Chairman Pandey made the announcement during a media interaction. He spoke on the sidelines of an event organized by the Association of Investment Bankers of India. "This settlement application is under process with different committees at SEBI," Pandey told reporters. "But in principle, we agree to that settlement."
Understanding the Co-Location and Dark Fibre Issues
The cases revolve around serious allegations against NSE. Some brokers allegedly received preferential access through the exchange's co-location facility. They also benefited from early login privileges and dark fibre connections.
Let's break down these technical terms:
- Co-location facility: This refers to data center space that exchanges provide to stock brokers. It allows them to place their servers physically close to the exchange's systems.
- Dark fibre: These are passive optical cables without active electronic connections. They can transmit data between two points with minimal latency.
The combination of these advantages gave certain traders a split-second faster access to market data feeds. This tiny time advantage can translate into significant trading profits in high-frequency environments.
Financial Implications and Background
NSE has been preparing for this settlement for some time. In June of last year, the exchange filed two separate settlement applications with SEBI. The total amount sought for settlement reached Rs 1,387.39 crore.
During the quarter ending September 30, 2025, NSE set aside provisions worth Rs 1,297.41 crore. These funds were specifically earmarked for resolving the co-location and dark fibre matters.
The allegations first surfaced nearly a decade ago. A whistle-blower raised concerns about unfair market access in January 2015. The matter has undergone extensive regulatory scrutiny since then.
IPO Prospects and Regulatory Discussions
Pandey's statement arrives just days after he hinted at another important development. SEBI may issue a no-objection certificate to NSE for its IPO this very month. The exchange originally filed its draft red herring prospectus back in 2016.
Beyond the NSE settlement, Chairman Pandey addressed broader regulatory concerns. He revealed that SEBI is engaged in discussions with the Ministry of Corporate Affairs. They are exploring ways to regulate the unlisted share market, which currently operates outside SEBI's direct oversight.
"We have to see whether we do have regulatory powers to get into an unlisted area," Pandey explained. "And how far that unlisted area goes. This is under discussion with the Ministry of Corporate Affairs."
The Challenge of Unlisted Shares
Unlisted shares represent company equity not traded on formal stock exchanges. These securities change hands through over-the-counter transactions among limited investor groups. Trading typically begins two to three years before a company files for an IPO.
Pandey described the unlisted share market as a regulatory grey area. It currently lacks proper oversight mechanisms. The regulator's role traditionally begins only when a company prepares for listing.
Emphasis on IPO Transparency
Earlier in his speech, the SEBI Chairman highlighted another critical issue. He expressed concern about recurring disclosure gaps in IPO offer documents. These deficiencies reduce transparency and investor understanding.
They also extend the fundraising timeline through repeated regulatory queries. Pandey emphasized specific areas needing improvement:
- Capital structure disclosures must clearly explain past capital raisings
- Preferential allotments and changes in control require detailed explanation
- Business models need greater clarity with transparent revenue and cost drivers
The Chairman stressed that these disclosures become particularly important when changes occur close to the IPO filing. Proper documentation helps maintain market integrity and protects investor interests.
