Mumbai: The National Stock Exchange of India Ltd (NSE) and the Singapore Exchange Ltd (SGX) on Tuesday agreed before the Bombay High Court to take their dispute over SGX’s India-focused derivative products to arbitration. The two exchanges agreed to appoint retired judge S.J. Vazifdar as arbitrator.

The arbitrator will hear the matter from 12 to 16 June and pass an order by the last day of hearing. SGX said it will not launch the disputed product until the arbitration is through.

After NSE barred foreign bourses from trading in Nifty derivatives on 9 February, SGX came up with a new product that works just like the Nifty index, bypassing Indian exchanges. NSE challenged the launch of this product in the Bombay High Court, contending SGX “is attempting to violate the existing licence agreement by the proposed launch of new derivatives contracts". The court has already restrained SGX from launching new derivative contracts until further orders.

“The present petition and the written submissions dated May 24, 2018, shall be treated as an application..." ruled Bombay High Court justice S.J. Kathawala in an order on Tuesday. “The respondents shall, on or before May 31, 2018, file their reply and any application under section 17 of the Act, should they so desire, together with all documents in support thereof, with an advance copy on the petitioner," said the order. Typically, Section 17 of the Arbitration and Conciliation Act provides relief to parties to take any interim measure of protection from the other party’s interest.

Meanwhile, a spokesperson for the Monetary Authority of Singapore (MAS) said the row is disruptive for international institutional investors in Indian equities. “The range of available financial instruments for investors to hedge exposures and manage risks in Indian equities will be reduced. A prolonged dispute will impact the accessibility of the Indian equities market to international investors. MAS urges all parties concerned to work together to find an amicable solution that will continue to encourage investments in the Indian market. A speedy resolution to the dispute will be in the best interest of all parties concerned," an MAS spokesperson said in a press statement.

In a statement, NSE said Indian capital markets remain open to international investors. It said international investors keen to invest in India should use “licensed and legally permissible products". “First, investors can access Indian onshore markets that are deep and liquid. Second, investors have access to NSE IFSC in GIFT City which is on par with international jurisdictions and provides dollar denominated contracts in a tax efficient structure, it said.

Responding to the court order on arbitration, SGX said, “The court has ordered the matter to be fixed for arbitration and for a decision on the injunction to be made by 16 June 2018". SGX also said that the launch of its India-focused products which were to be launched from 4 June has been deferred and will be launched pending the outcome of the arbitration. It added that it will contest the interim stay and will pursue options in respect of “damages" caused by India Index Services and Products (IISL), NSE’s wholly-owned subsidiary which runs its index services.

“IISL’s action has adversely affected international investors who rely on SGX’s platform to manage the risks of their exposures to the Indian market, and significantly diminishes access to, and interest in the capital markets in India. SGX remains open to a collaborative long-term solution that will benefit Indian markets," said SGX.

While the court has stayed the launch of Singapore’s new India focussed derivatives products, it will continue to list SGX Nifty contracts till August 2018. “This will enable our clients to manage their portfolio risks without interruption," SGX added.

Meanwhile, talks between NSE and SGX for a Gujarat International Finance Tech City or GIFT City connect has come to an end owing lack of infrastructure and streamlined broker registration processes at NSE International Financial Services Centre).

“NSE IFSC has got all the necessary impetus like Omnibus framework easing the access norms for foreign clients, favourable tax regime at par with other international jurisdictions and lower costs to attract foreign flows. We are positive and it’s a matter of time before clients start trading at IFSC," said Sohil Chand, managing director, Norwest Venture Partners. Norwest is a shareholder of NSE.

The story so far

9 February: NSE bars overseas bourses from trading in Nifty derivatives

11 April: SGX announced a new product that NSE argued are ‘unlicensed products’ and “identical" to Nifty-branded futures

21 May: NSE approaches Bombay high court to bar SGX from launching the new product

23 May: Bombay HC granted an extension on the stay to SGX from launching the new product

29 May: Both NSE and SGX agree to resolve the dispute through arbitration

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