Mumbai: Gujarat International Finance Tech (GIFT) City has suffered a setback with the National Stock Exchange of India Ltd (NSE) reaching a dead end in its talks with the Singapore Stock Exchange (SGX).
Talks between the two premier exchanges over bringing liquidity to the upcoming international finance centre through a so-called GIFT connect have stalled, two people aware of the matter said.
A GIFT connect was all the more important in the wake of the ongoing legal tussle between NSE and SGX. The battle began on 9 February when Indian exchanges barred overseas bourses from trading in Nifty derivatives. On 11 April, SGX announced a new product which works just like the Nifty, bypassing the Indian exchange. NSE tried to stall the launch slated for 4 June but negotiations failed, leading to NSE suing SGX on 21 May.
“The negotiations between NSE and SGX included getting liquidity from offshore markets—SGX to GIFT—but it proved tougher than originally thought," said the first of the two people quoted above, both of whom spoke under condition of anonymity.
“NSE was, in fact, willing to extend the deadline for cessation of SGX Nifty contracts beyond August if SGX established a GIFT connect. NSE wanted SGX’s brokers and clients to come to GIFT with a revenue and resource sharing arrangement. But SGX stuck to its decision of launching its own set of contracts as the two parties could not agree on terms of these arrangements," he added. Talks between the two exchanges failed largely due to lack of infrastructure, low volumes, lack of market structures and limited physical presence of foreign investors at GIFT in Gujarat’s Gandhinagar, the two people explained.
An email sent to SGX and a subsequent call for comments was not answered. “The matter is sub-judice and we are unable to comment on the same" said an NSE spokesperon.
“The venture is largely dead; the lawsuit has sealed it for SGX. Right now, it is like a waiting game—for either of the parties to walk away from the talks officially as the relationship has become sour," said the second of the two quoted above.
“The terms of the contract were very one-sided like work exclusively on GIFT and not the SGX’s India-focused derivatives contracts. The Singapore bourse needed some transition contracts as GIFT was not operationally ready with presence of brokers, seamless registration and contract settlement related issues," he added, declining to be named.
“An August deadline was too short for SGX to transition liquidity from its platform to NSE IFSC. At present, GIFT is like a startup and the majority of brokers and clients may not find it in their interest to migrate immediately to GIFT. Market structure has to be correct and established; only then would market players find it in their interest to migrate," said Hirander Misra, chairman and CEO of GMEX Group, a solutions provider for global financial markets. According to Patrick Young, a capital markets expert and CEO of crowd-funding platform Hanza Trade, investors are concerned due to the protectionist environment in India.
“GIFT is a nascent project but under the suzerainty of the same Indian authorities who end contracts simply because (broadly closed to foreigners) domestic markets are subject to international competition. It makes no sense to investors already concerned with the protectionist caprice of Indian regulation to subject themselves willingly to Indian jurisdiction. In this sense, a ham-fisted attempt to advance GIFT has significantly damaged the entire financial centre project, perhaps permanently," said Young. However, Devesh Kumar, managing director and country head of CGS-CIMB Securities (India) Pvt. Ltd was more optimistic: “If the tax benefits (tax structure is at par with SGX) and omnibus accounts at GIFT City are seen together, then it is a matter of time when GIFT starts seeing volumes," he said.