Sebi weighs tighter norms to protect market liquidity

India’s market regulator is weighing options to direct stock exchanges to either stop offering securities-related data feed services to entities trading on bourses abroad, such as the Singapore Stock Exchange (SGX), or levy high additional fees on the traders.

Two persons directly aware of the ongoing discussions between the Securities and Exchange Board of India (Sebi) and stock exchanges said the markets regulator was doing this in an effort to prevent the country’s derivatives business from migrating offshore.

About 40% of Nifty futures turnover and as much as 70% of the open interest is on the SGX platform and the remaining share is with the National Stock Exchange of India (NSE). On Monday, equity derivatives worth Rs3.19 trillion were traded on the NSE.

Sebi’s move assumes significance in the backdrop of a recent announcement by SGX of its proposal to launch single stock futures benchmarked to Nifty 50 companies.

Reacting to SGX’s move last week, Vikram Limaye, managing director and chief executive of NSE, had expressed concern that “liquidity of Indian markets (is) being fragmented and moving offshore”.

“Exchanges are business entities and they may intend to promote their products globally or earn index service fees from foreign bourses but it should not come at the cost of country’s overall market liquidity,” one of the people cited above said on condition of anonymity. “Higher fees on traders who use data feed services from exchanges for trading in offshore markets may discourage entities from trading (in) foreign markets.”

For taking any trade positions in any Nifty-related contract on SGX or any other foreign exchange, data feed from NSE is vital. Exchanges provide real-time data online through dedicated private, high-speed, leased line circuits.

A Sebi spokesperson did not reply to an email seeking comment. NSE and BSE declined to comment.

Sebi asked exchanges last week to submit a detailed report on the way they provide data to investors trading on SGX and other foreign markets in which India-linked products are traded and the nature of contracts in demand, said the second of the two people cited earlier, also on condition of anonymity.

In India, most of the equity derivatives trade takes place on NSE, which has a bilateral securities trading link with SGX to enable investors in one country to smoothly trade on the other country’s exchange. For instance, the Nifty futures contracts settled on SGX are based on the Nifty settlement price on NSE. The Indian exchange has similar agreements with the Chicago Mercantile Exchange, the Osaka Exchange and TAIFEX of Taiwan.

“For customers who now cannot take the participatory-note route or do not wish to trade on Indian exchanges, the proposed restrictions on data feeds or higher fees may affect price discovery of Indian contracts on offshore exchanges. This, in turn, may deter such customers from taking position in India-linked contracts on offshore exchanges,” said Kalpesh J. Mehta, leader, financial services industry, Deloitte India.

“Here in India, transaction charges and taxes are higher than Singapore. If the fees for data feed is made higher, it will possibly create a fair competition between customers of the exchanges in the two countries,” said Mehta.