The National Stock Exchange (NSE) highlighted the risks posed by AI-driven trading strategies in its initial public offering (IPO) documents filed on September 10. The exchange warned that the increasing use of artificial intelligence and machine learning by market participants could negatively impact its business, reputation, financial condition, and results, according to medianama.com.
NSE's red herring prospectus (RHP) detailed concerns over AI-driven and algorithmic trading, which dominate futures and options (F&O) trading on its platform. The exchange earns nearly 79% of its revenue from transaction charges, primarily from F&O trading. It cautioned that AI trading could amplify market volatility, cause sudden price dislocations, and enable new forms of market manipulation that are difficult to detect due to the complexity of AI systems and rapid innovation outpacing regulatory frameworks.
The exchange identified two main issues: AI systems may generate inaccurate or biased outputs because of flawed algorithms or poor data, and the rapid evolution of AI could surpass existing regulations and the exchange’s surveillance capabilities. This concern comes amid growing global scrutiny of AI’s impact on financial markets and the challenges regulators face in monitoring automated trading strategies.
NSE disclosed that transaction charges accounted for 79.44% of its revenue in the three months ended June 2026 (Q1 FY27) and 78.65% in FY26, underscoring the financial significance of F&O trading. The IPO filing signals the exchange’s acknowledgment of AI’s disruptive potential within its core business operations.