NSE moves HC against SGX over launch of derivatives
NSE had in February decided to bar overseas exchanges from trading in Nifty equity derivatives, following which SGX announced India futures and options that use Nifty price to settle new contracts
Mumbai: The National Stock Exchange of India Ltd (NSE) has sued Singapore Exchange Ltd (SGX) in the Bombay high court seeking to prevent the launch of Nifty-based products by the Singapore bourse in June.
“SGX has been notified by the NSE of an application made in the Bombay high court for an interim injunction on our new products,” SGX said in a statement on Tuesday. An email sent to an NSE spokesperson for comments was not answered immediately.
Justice S.J. Khathawala of the Bombay high court admitted the matter on Tuesday and restrained the Singapore exchange from launching new derivative contracts until further notice. The court will hear the matter on Wednesday.
NSE’s subsidiary India Index Services and Products, which provides indices and index-related services, sought an interim relief from the court to stop the launch of these products. NSE has contended that SGX “is attempting to violate the existing licence agreement by the proposed launch of new derivatives contracts”.
On 9 February, Indian exchanges decided to bar overseas bourses from trading in Nifty derivatives in an attempt to check migration of trades away from them. Two months later, on 11 April, SGX announced a new product which works just like the Nifty index, bypassing the Indian exchanges.
The new products are called India futures and India options, and SGX will use the closing Nifty price to settle its new contracts.
“According to the petitioner (NSE) these new derivatives contracts are identical to certain products (SGX Nifty 50 Index Futures, SGX Nifty 50 Index Options and SGX Nifty Bank Index Futures), which were licensed under the licence agreement and proposed to be launched on the respondent’s platform despite issuance of the termination notice,” said the interim order.
The court will hear the matter for interim relief under section 9 of Arbitration Act on Wednesday.
Typically Section 9 of the Arbitration and Conciliation Act provides interim measures of the protection between jurisdictions. Generally, parties approach the courts for securing rights or maintaining status quo at the time of the ongoing dispute.
“We have full confidence in our legal position and will vigorously defend this action. Our clients can continue to trade per normal,” SGX said in the statement.
The NSE petition said after technical and legal examination, it had come to a conclusion that “SGX’s products were primarily infringing on copyrighted work”, a person familiar with the development said, on condition of anonymity.
“No one has used the entire index’s settlement price. If that continues to happen, there would be no sanctity for copyrighted work or IP rights,” he added.
Mint had reported on 16 April that NSE is examining the SGX products for legal remedy.
If NSE is able to get interim relief it might force foreign investors who used to trade via SGX to create structures or register as foreign portfolio investors (FPIs) to trade directly on NSE. “The case may take time to get finally determined. The outcome of the stay application would be more relevant immediately. If the stay is granted, any trading in violation may create legal liability and challenges for the investors. The matter may also have larger implication on other joint initiatives between the two exchanges,” said Darshan Upadhyay, Partner, Economic Law Practices, a law firm.
According to Sandeep Parekh, Managing Partner, Finsec Law Advisors the case will end up creating international jurisprudence.
“The case would revolve around whether there is violation of any intellectual property of the NSE and its prices and whether these are in public domain, so as to be freely used commercially by third parties. It (judgement) would likely create new international jurisprudence on usage of pricing data as copyrightable,” said Parekh.
To be sure, SGX is not stalling the launch despite the legal challenge. In Singapore under the Reciprocal Enforcement of Commonwealth Judgements Act, a judgement from a Gazetted country (which includes India) is enforceable in Singapore.
“Our new India derivative products, which have received relevant regulatory approvals, will list in June 2018 and allow its clients to seamlessly transition their India risk management exposures. Our new India equity derivative products are essential to enable institutional investors to maintain their current portfolio risk exposure to the Indian capital markets,” said Michael Syn, head of derivatives, SGX.
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