Mumbai: National Stock Exchange of India Ltd (NSE) is studying the technical and legal aspects of Singapore Stock Exchange’s (SGX) new product that mimics NSE’s Nifty, two people aware of the matter said.
Indian exchanges had on 9 February decided to bar overseas exchanges from trading in Nifty derivatives, in an attempt to check migration of trades away from Indian exchanges. Two months later, on 11 April, SGX announced a new product which works just like the Nifty index, bypassing the Indian exchanges.
According to the first of the two people, NSE’s latest move is to ensure that the SGX product does not violate Nifty trademark rights or the Indian exchanges’ decision to prevent use of data feeds to trade on overseas platforms.
“If NSE finds a violation, then the exchange will explore further options such as negotiations, regulatory intervention even an Intellectual Property (IP) infringement case," this person said on condition of anonymity.
“We are examining the matter and discussing with SGX to better understand the product. Any future course of action will be dependent on our assessment of the situation after getting a full understanding of the situation and it would be premature and incorrect to speculate at this time on what that might be," an NSE spokesperson said in an emailed response.
Last week, SGX said it will list its new India equity derivative products in June, providing participants continuity with their India risk management exposures. It will delist all derivatives contracts, including Nifty futures, which were based on a partnership with NSE.
SGX will use the closing Nifty price to settle its new contracts.
According to an SGX circular to its members, it will continue to offer trading in Nifty futures and options but only by a different name. Mint has seen a copy of the circular.
“It appears that SGX will not be using any of the Nifty trademarks. It is also understood that SGX has regulatory clearances on the products," a person familiar with exchange businesses said on condition of anonymity. SGX can take comfort from a US judgement of August 2007, when the New York Mercantile Exchange sued Intercontinental Exchange Inc.
The court ruled that settlement prices cannot be copyrighted, and all participants are free to use them.
“It is not so simple and not possible that they will not be using any copyrighted work. NSE’s legal team is coordinating with the technical team and is currently examining the product contours to look for any possible violation, if found NSE can take a legal action. However, the action will be deliberated as it could lead to further souring of relations between NSE and SGX," said the second person, also on condition of anonymity.
According to the first person, SGX’s move will also set a precedent internationally. “No one has used the entire index’s settlement price. Even here, SGX may find it difficult to consolidate liquidity and require market making," he said.
In India, exchanges such as Multi Commodity Exchange Ltd (MCX) use settlement data of overseas exchanges to settle gold and crude oil contracts. But for such usage, MCX has permission or arrangement with overseas exchanges.
“Unlike SGX, which will be using settlement data without consulting with NSE, NSE has an arrangement with LBMA (London Bullion Market) for settling its gold contracts, and with NASDAQ for settling its single stock futures contracts," said the second of two cited above.
Meanwhile, the latest SGX move also puts a question mark on the so-called GIFT connect with SGX. NSE has not commented on its plans for GIFT connect yet.
“We have been in discussions with SGX and regulators to look at alternative structures to transition the SGX liquidity to GIFT City," said a spokesperson for NSE.