Summary of this article
The NSE IPO opens for subscription on September 17.
Sebi imposes heavy financial penalties for exchange system downtime.
Investors must weigh monopoly benefits against operational glitch risks.
National Stock Exchange’s (NSE) initial public offering is set to open for subscription on September 17, 2026. Ahead of the opening of the bidding window, the public issue is generating a lot of buzz.
One of the key appeals of the public issue for investors is the exchange’s unique business model and its near-monopoly across critical capital market segments such as equities, derivatives, and clearing services.
However, among the many strengths that make the exchange appealing, there are operational realities that investors must evaluate before applying. Key among them is the regulatory cost the exchange must bear for system downtime, which can be termed the ‘glitch tax’.
What Is the Glitch Tax
Technical glitches are common across web platforms. Websites which witness heavy footfalls and get many visitors often end up seeing technical glitches. However, for most websites, such system downtime typically results in users getting slightly frustrated.
On the other hand, for a Market Infrastructure Institution (MII) like NSE, system availability is strictly regulated by the Securities and Exchange Board of India (Sebi). Under Sebi guidelines, disruptions, operational failures, and surveillance lapses trigger automatic financial disincentives.
For surveillance-related lapses, Sebi’s dedicated framework mandates penalties ranging from Rs 25 lakh to Rs 1 crore. For major operational disruptions and technical failures, penalties under the SECC Master Circular range from Rs 2 lakh up to the higher of Rs 2 crore or 20 per cent of the average standalone net profit of the preceding two financial years. These funds are credited into the Investor Protection Fund Trust (IPFT) or the Core Settlement Guarantee Fund.
How the Glitch Tax Plays Out
According to NSE’s Red Herring Prospectus (RHP) these technical flaws have converted into direct financial liabilities and regulatory scrutiny for the exchange in the past. In April 2024, during the morning pre-open auction session, an error occurred in calculating the equilibrium price for a single listed company's scrip. This calculation error led to incorrect residual orders, and the incorrect reference price and price band were locked in for the stock and trading in the scrip had to be briefly suspended before the issue was rectified. Following the glitch, NSE ended up paying Rs 6.04 crore under the standard operating procedure for the technical glitch in 2026.
Earlier in February 2021, a telecom link failure disrupted the Storage Area Network, halting all market segments for five hours and 24 minutes. This culminated in settlement orders where the exchange paid Rs 49.76 crore and its clearing arm, NSE Clearing, paid Rs 22.88 crore. The total regulatory payout for this single incident reached Rs 72.65 crore.
In order not to attract such penalties, NSE has to deploy substantial capital into its technology stack. According to the RHP, the exchange’s technology-related operating expenses rose to Rs 1,314.58 crore in FY26, up from Rs 786.17 crore in FY24. These costs weigh heavily on NSE’s capital expenditure.
What NSE IPO Applicants Need To Know
The exchange presents prospective applicants with a robust business model backed by market depth and strong cash flows. However, applying for the IPO requires recognising that the exchange operates under a zero-tolerance regulatory regime. Thus, ultimately, investors should not get swayed by the strengths alone and also consider operational risks such as the price NSE has to pay for glitches.
