Stock exchanges in Brazil, Russia, India, Hong Kong and South Africa are coming together in an alliance, which will allow them to cross-list their benchmark indices on each other’s trading venues.
Cross-listing isn’t a new concept for Indian exchanges. The National Stock Exchange of India Ltd (NSE) is already offering the S&P 500 and Dow Jones indices on its trading platform, and is in talks with other index providers and exchanges to list more indices. Its own Nifty index is traded on the Singapore Exchange as well as the Chicago Mercantile Exchange.
BSE Ltd’s Sensex is traded on the Eurex platform, and it is looking to add international indices on its platform through an agreement with International Securities Exchange (ISE). Both Eurex and ISE are part of the Deutsche Boerse Group.
The new agreement with exchanges from emerging markets essentially means that Indian exchanges will soon be able to host more indices on their platforms. Besides, Indian indices will be available in more overseas markets. This is a positive development, since it gives users in these markets access to an increasing number of products to trade.
Having said that, the market for overseas indices is typically not that big. The average turnover of derivatives contracts on the S&P 500 and Dow Jones listed on NSE amounts to about Rs 80-100 crore, even with the benefit of a market-making programme, which offsets the securities transaction tax payable by members on their trades. Of course, these are early days, so it may be a tad early to come to a conclusion on trading interest for these products. But trading interest in overseas indices is typically limited—traders the world over have a home bias, preferring to trade on local market indices and stocks.
It’s interesting to see these exchanges looking to collaborate without getting into costly mergers and acquisitions (M&A). There have been two waves of exchange M&As in the past five years and there’s no evidence that these have been necessarily good for the bourses involved. Cross-listing and product development agreements, meanwhile, result in some of the benefits gained from M&A, without the cost and effort of having to manage one.