The Singapore Stock Exchange (SGX) on Sunday said it will develop new products to provide investors with access to Indian securities after exchanges in the country abruptly decided to end licensing their products and data to overseas bourses.

Indian stock exchanges, in a joint statement on 9 February, decided to cancel licensing agreements for providing indices and securities-related data feed services to foreign exchanges and trading platforms. The exchanges also terminated licensing agreements with overseas bourses.

The move appeared to have been triggered by SGX’s decision to introduce futures contracts on the top 50 Indian stocks from 5 February even as the Singapore exchange has gradually expanded its market share in Nifty futures trading to 52%.

The termination marked the end of the 17-year association of the National Stock Exchange of India (NSE) with SGX for sharing Indian securities-related data feeds and licensing Nifty products, including the popular SGX Nifty futures contract, which will cease to exist after six months.

On its part, SGX assured investors on Sunday that regular trades and settlements will continue for Indian equity derivatives on its platform when the exchange opens on Monday. The Nifty suite of products licensed to SGX will continue to be available till August, after which the contract between NSE and SGX will expire. SGX added that trading in Nifty-based single-stock futures will continue. 

The exchange, meanwhile, outlined its strategy for giving overseas investors access to Indian securities.

“SGX will develop and launch new India-access risk management solutions to allow global participants in SGX India equity index family of derivative products, to execute their investment activities with continuity," the exchange said in the statement.

SGX is also considering NSE’s Gujarat International Financial Tech (GIFT)-based International Financial Services Centre (IFSC) for creating products for global investors.

While SGX is considering new product offerings to skirt the restrictions, Indian exchanges are trying to plug loopholes to prevent export of liquidity that could allow foreign exchanges to become price setters for Indian securities. These steps include barring third-party data vendors such as Bloomberg or Reuters from providing data from Indian exchanges for trading on overseas platforms. “Any usage of data provided by us for trading on international platforms will not be legally permissible," said Vikram Limaye, managing director and chief executive of NSE. “This will hold true for MSCI Index too. Data given for MSCI Index cannot be used for trades on foreign exchanges."

However, the feeds will be allowed for exchange-traded funds (ETFs) as this involves fund-raising, but any speculative product such as futures on ETFs is not permissible, said an exchange official, requesting anonymity.

“It’s not totally out of realm of possibility for people to use alternative methods and indices to do same business," said another exchange official familiar with the operations of overseas exchanges, declining to be named.

According to Sandeep Parekh, managing partner at Finsec Law Advisors, Indian stock exchanges have two revenue streams from foreign exchanges. One, from providing market data, and two, from licensing their indices. The local exchanges, he said, seem to have concluded that the loss from foreign stock exchanges cannibalizing their trade is more than what is gained in revenue from them.

The restrictions on overseas exchanges may be difficult to implement, said a market participant, requesting anonymity.

“It seems protectionist, restrictive and looks difficult to implement. It is possible that Singapore and other exchanges can make a product similar to Nifty 50 without violating the terms of the contract," the person said. “It is unclear how the foreign exchanges will trade in Indian securities without having access to real time data feeds."

Most of the international interest in India, and inflows, comes through the MSCI Emerging Markets Index. MSCI India has about 9% weightage within this index. MSCI India has over $9.2 billion in total assets under management for MSCI India family ETFs.