Mumbai: In a move that could expand its substantial lead in market share over its older rival, the Bombay Stock Exchange (BSE), the National Stock Exchange (NSE) has tied up with world’s leading derivatives market Chicago Mercantile Exchange (CME) to launch dollar-denominated Nifty derivatives in the US.
Derivatives trade: The Chicago Mercantile Exchange will get to launch US dollar-denominated S&P CNX Nifty Index futures contracts. Tim Boyle / Bloomberg
In return, NSE will get the rights to create and list rupee-denominated futures in the S&P 500 and Dow Jones Industrial Average. Both are subject to the clearance of India’s capital market regulator, the Securities and Exchange Board of India (Sebi).
“This association with CME Group will make the Nifty 50, and, over time, potentially other products across various India-related asset classes, available to a much larger community of traders and investors,” said Ravi Narain, managing director and chief executive officer of NSE.
CME Group chief executive Craig Donohue said the partnership with NSE will further expand its customers’ access to the most active foreign markets.
After listing on CME, Nifty will be traded throughout the day, enabling seamless price discovery round the clock, experts said. Any market-moving global event that happens when the markets are shut in India can be absorbed instantly and reflected in the prices. This will avoid any huge shocks the next morning, the experts said.
Currently, dollar-denominated Nifty futures trade on the Singapore Exchange (SGX) for 16 hours, from 9am Singapore time to 1am Singapore time the next day. That’s 6.30am by Indian Standard Time (IST) to 10.30pm IST, since Singapore is in a time zone two-and-a-half hours ahead of India.
What will be the duration of trading of Nifty contracts on CME is not known. Most contracts like Dow and S&P futures trade for 23 hours.
“Nifty will be one of the favourite indices if it gets traded, given that there is considerable interest in the Indian markets among US investors. This will make it a round-the-clock index, allowing better price discovery,” said Rajiv Verma, senior derivatives analyst at brokerage India Infoline Ltd.
Under the cross-listing arrangements, the S&P CNX Nifty Index (the Nifty 50) will be made available to CME for the creation and listing of US dollar-denominated futures contracts for trading on CME.
In late 2007, BSE, Asia’s oldest exchange, tied up with the US Futures Exchange to list a dollar-denominated Sensex futures but the experiment failed for lack of investor interest.
The futures contract based on BSE’s benchmark index, the Sensex, would have helped the US investors participate directly in India’s equity markets without requiring American Depositary Receipt authorization.
NSE might get a better reception from investors. “Nifty products are followed across the world. I expect them to be fairly liquid,” said Manish Sonthalia of Motilal Oswal Financial Services Ltd, a Mumbai-based brokerage.
In July, MCX Stock Exchange (MCX-SX), the third entrant in the equity exchange arena, partnered with UK-based FTSE Group to develop index-based products for the Indian equity market.
MCX-SX, promoted by Financial Technologies Ltd and Multi Commodity Exchange Ltd (MCX), currently operates a currency futures trading platform and accounts for half the market in this segment. The exchange is awaiting regulatory approvals for equity trading.
Once NSE starts trading rupee-denominated Dow Jones and S&P 500 Futures, “people will not have to stay awake and look for cues in the US market. These will now be available through Dow and S&P in the local market itself”, said Verma of India Infoline.
The move is expected to further strengthen NSE’s virtual monopoly in the derivatives segment.
NSE offers trading in 233 stocks in its futures and options segment, and BSE offers trading in 327 stocks.
The average daily turnover in the cash segment at both exchanges in February was Rs17,104 crore. The derivatives trading was almost five times larger at Rs81,952 crore.
BSE’s trading volume in the derivatives segment is almost zero. Although it accounts for about one-fourth of spot trading, its overall market share is around 7%.