The NSE IPO closes to retail subscription on September 21, and the most interesting number in the prospectus is not the price. It is 60.22 percent — the share of the National Stock Exchange of India’s operating revenue that came from options in the financial year that ended this March. A single product line, in a market the country’s own regulator has spent two years deliberately shrinking.
India got to be the world’s largest options market by contract count for reasons that had nothing to do with finance. Phones got cheap, mobile data got cheaper, and the minimum bet got small enough that ordinary people could place one without thinking about it. Two exchanges spread index option expiries across different weekdays, so there was a fresh contract expiring almost every day of the week. Then the results came in. India’s regulator found that around nine out of ten individual traders in futures and options were losing money, and that the money was moving to professional trading firms on the other side.
So in late 2024 the Securities and Exchange Board of India did something unusual for a regulator overseeing a booming market: it made the product harder to buy. It roughly tripled the minimum size of an options contract, from about 5 million rupees to 15 million, and limited each exchange to one weekly expiry index. Volumes fell quickly. Retail losses fell too. That was the point.
What makes the NSE IPO worth looking at from outside India is that the United States is running the same experiment in reverse, and I have written about the pieces as they appeared. Options that expire the same day now dominate volume rather than monthly contracts. Event contracts on interest rate decisions turned macroeconomics into a tradable yes-or-no bet, and the same venue now lists contracts on the price of compute. Funds that reset their leverage by the hour rather than the day went through the SEC’s process. Sports outcomes arrived on brokerage apps under the label of an uncorrelated asset class. India raised the threshold. The US keeps lowering it.
That is the context for the valuation cut. NSE had been marketing itself to global investors at somewhere around $55 billion. The offering came to market at roughly $46 billion — 15 to 20 percent under what it had been pitching, and well under what its shares changed hands for in India’s private market two years ago. Revenue and profit both fell in the last financial year. Analysts expect derivative volume growth in the single digits for the year ahead.
None of that means the exchange is a bad business. It has more than 90 percent of India’s cash equity trading and near-total share of equity futures, and the IPO is entirely a sale by existing shareholders, so the company itself raises nothing and gives up nothing. Sovereign funds and large asset managers stepped in at the lower price. The question a buyer has to answer is narrower than “is India growing.” It is: what is an exchange worth when the regulator has decided that its most profitable product was extracting money from the people using it?
Worth noting that the professional firms on the winning side of that trade have had their own encounter with Indian regulators — the market-making business I looked at in the Jane Street credit upgrade is the same business that showed up in SEBI’s findings about who was on the other side of retail.
There is a line somewhere between opening markets to ordinary people and moving their money somewhere else with extra steps. India decided where it thought that line was and enforced it, at a direct cost to its own exchange’s earnings. The NSE IPO is what that decision looks like when it finally gets a price.
My take: Buying an exchange isn’t buying a market. It’s buying how often people place a bet.
Not advice. Just how I see it.