NSE shrinks monthslong share transfer process to days ahead of a likely IPO

Mumbai: In a significant step towards the potential listing of India’s largest bourse, the National Stock Exchange of India Ltd will lift a key hurdle that stood in the way of faster transfers of its shares.

The stock exchange has informed its shareholders that the existing process for transferring its shares will be lifted on Monday, implying that NSE shares can be credited to a buyer’s account more expeditiously than in the current 2-4 months.

NSE’s move is in line with a 14 October circular by the Securities and Exchange Board of India specifying shareholding rules for market infrastructure institutions, including on share transfers and designating depositories for transfer of shareholding. This was to be implemented in January but got delayed.

Faster completion of NSE share transfers—in a few days after a trade is executed, rather than in a few months—could increase the demand and activity in the unlisted segment for NSE’s shares because of vastly reduced transaction costs.

The current monthslong process for transferring NSE shares renders the stock relatively illiquid as compared with other unlisted entities, which don’t have to adhere to such rules as they are not systemically important institutions.

NSE in August submitted an application for a no-objection certificate from Sebi for filing its documents for an initial public offering of its shares. The regulator’s nod is awaited.

“Expediting the process is a step toward the eventual listing of NSE and will sharply increase the demand for the unlisted shares,” said Narinder Wadhwa, managing director of SKI Capital, a brokerage.

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No more two-stage process

In a communication to its shareholders on Friday, NSE explained that its shares could be transferred from Monday without having to follow a two-stage process.

“In view of SEBI circular dated October 14, 2024, the ISIN (International Securities Identification Number) of National Stock Exchange of India Limited (NSE) will be activated/unfreezed w.e.f. Monday, March 24, 2025. Accordingly, from Monday, the shares of NSE can be transferred through DIS (delivery instruction slip) mechanism without following the existing stage 1/stage 2 process,” NSE said.

NSE’s ISIN, a global identifier for securities, was in suspended mode. Once the suspension is lifted on Monday, NSE’s shares can be transferred through a delivery slip instruction mode through a depository participant. The DP will ensure that the buyer is complaint with Sebi’s rules governing shareholding in market infrastructure institutions.

NSE has appointed Central Depository Services Ltd as its designated depository. A seller has to inform the depository participant when they want to sell NSE shares, and the DP will expedite the process without involving the two stages the stock exchange mentioned.

Stage 1 required shareholders to obtain a no-objection certificate from NSE after submitting several documents and paying a fee of ₹5 lakh, plus service tax. Stage 2 entailed applying for a Sebi registration after receiving the regulator’s approval for share transfers. This also entailed significant compliances and application forms to be submitted.

Not having to go through these stages is expected to benefit even small retail investors.

“Earlier, because of the longdrawn process, smaller buyers were disincentivised from participating because of the high transaction costs, like hiring an intermediary to transfer the shares to complete KYC (the know-your-customer or customer-verification process), etc.,” said Ashish Nanda, president and digital business head at Kotak Securities.

“Now, a seller can instruct his DP to simply transfer shares on the same day of trade or a day after the trade,” he added.

A rally and a correction in sight

Sanil Jain, a senior manager at IIFL Capital, expects a temporary bump-up in the price of NSE shares as demand increases because of the faster transfers and the potential IPO.

“The price at retail level, which was around ₹1,800 in mid-December last year to January, has slipped to around ₹1,600 in line with the market correction,” said Jain.

But “I think the easing of the transfer process will result in a rally before a pullback to around ₹1,450 sets in post the Q4 numbers on account of the fall in cash and derivatives volumes because of the market correction in red net months,” he added.

NSE’s top shareholders are Life Insurance Corporation of India, which holds a 10.72% stake in the stock exchange, followed by Aranda Investments (5%), Stock Holding Corporation of India (4.44%), and SBI Capital Markets (4.33%). NSE has 20,444 shareholders.

NSE had a 94.2% three-month rolling share in cash segment equities and 85.1% in equity options as of 31 January.