By Jayshree P Upadhyay

MUMBAI, June 25 (Reuters) - The National Stock Exchange

of India has offered to pay the country's markets regulator

13.88 billion rupees ($160 million) to settle a legal dispute so

it can proceed with a long-delayed initial public offering,

three sources said.

The sum is set to be largest settlement made with the

markets regulator in India's history.

India's biggest bourse and the world's most active

derivatives exchange has been embroiled in litigation with the

Securities and Exchange Board of India (SEBI) since 2019 when it

was fined 11 billion rupees for failing to provide equitable

access to all its trading members.

They are negotiating an out-of-court settlement, according

to two of the sources.

All three sources, who have direct knowledge of the

discussions, were not authorised to speak to media and declined

to be identified.

The regulator is likely to grant the exchange a certificate

stating it has no objection to an IPO within three months, said

one source.

"If all goes as per expected timelines, NSE's IPO could hit

the markets before May next year," said another source.

NSE declined to comment. SEBI did not immediately reply to a

Reuters request for comment.

The cash-rich Mumbai-headquarted NSE has been trying to list

since 2016 to enable some of its biggest investors to exit.

But has been prevented by the regulator's investigations and

then the fine. NSE challenged the penalty in court which ordered

certain parts of SEBI's order to be set aside, which the

regulator later appealed at the nation's top court.

Among NSE's largest investors are the Life Insurance

Corporation of India with a 10.72% stake and the State

Bank of India with 7.76%, while Morgan Stanley ( MS )

owns 1.58% and the Canada Pension Investment Plan Board has

1.60%.

Its main domestic rival, BSE Ltd, listed in 2017.

SEBI is conducting an inspection of the exchange's systems

and processes before the no-objection certificate is issued,

said two of the sources.

SEBI wrote to the NSE in February flagging concerns

about the bourse's internal processes, including how management

is appointed and remunerated, its failure to appoint a

chairperson and technology shortfalls.

The settlement, if accepted by the regulator, will need the

approval of India's top court, two of the sources said.

($1 = 85.9520 Indian rupees)