Mumbai: Protracted acrimony between the National Stock Exchange of India Ltd (NSE) and the Singapore Exchange (SGX) over trading of Nifty derivatives in Singapore came to an end on Tuesday, with the two agreeing to create a new platform for trading them at the Gujarat International Finance Tec-City (GIFT) in Gandhinagar.
The new platform, called NSE International Financial Service Centre (IFSC)-SGX Connect, will allow trading in Nifty index derivatives of Nifty’s 50 constituents, officials from the two exchanges said at a joint press conference in Mumbai.
The seeds of the discord were sown in January 2018 when SGX decided to start trading of single stock-based Nifty products in Singapore. Concerned that this would lead to the offshore migration of Indian derivatives trades, NSE abruptly ended its licensing agreement with SGX that enabled the latter to launch Nifty products on its platform.
The new model, subject to certain approvals, is aimed at enabling members of SGX and NSE IFSC to trade in Nifty products at GIFT, while managing their exposures through their respective clearing corporations, according to a press statement by NSE.
“SGX and NSE will work with all key stakeholders to make the NSE IFSC-SGX Connect operational before the end of 2020... Both exchanges are also working to discontinue related arbitration proceedings," read the press statement.
NSE said Tuesday’s announcement follows recent approvals on certain dispensations for the proposed model from their respective regulators.
“We are working on varied product offerings to make GIFT City the hub of activity for all-India access products across asset classes for international investors and a gateway for home investors to access international markets," said Vikram Limaye, managing director and CEO of NSE.
“Depending upon the implementation details, it could be a win-win for SGX to retain some access to Nifty, and for NSE to bring SGX Nifty flow in GIFT City. SGX market participants shall look forward to clarity around if they need to register in GIFT City and, hence, under Indian regulators too, or not," said Kunal Nandwani, founder and CEO of uTrade Solutions Pvt. Ltd, a fintech company.
Mint had reported on 23 January 2018 that NSE was in talks with the Securities and Exchange Board of India and the government to find ways to prevent offshore migration of India’s equity derivatives business, essentially Nifty products.
On 18 January 2018, when SGX decided to launch single-stock Nifty derivatives, its Nifty-50 futures contracts had recorded daily turnover of at least $1 billion and open interest of $9 billion. The exchange had planned to launch these contracts from 5 February 2018, causing concerns at NSE that such a move might shift India’s derivatives business to Singapore.
NSE, which had announced plans to get listed, had mentioned in its draft red herring prospectus in December 2016 that it had an agreement with SGX that authorizes the latter to allow trading in derivatives such as index options and index futures benchmarked to Nifty 50, Nifty Bank, Nifty IT, Nifty CPSE and Nifty Midcap 50 indices.
NSE has similar agreements with the Chicago Mercantile Exchange, the Osaka Exchange and the Taiwan Futures Exchange of Taiwan. Also in 2016, six exchange-traded funds (ETFs) linked to Nifty indices were launched in global markets, including Hong Kong, Taiwan and South Korea. As of 30 September 2016, ETFs linked to Nifty indices were listed on 17 exchanges in 15 countries.
According to the draft prospectus, in fiscal 2015-16, SGX contributed almost 99% of NSE’s overseas index licensing fees. In the document, NSE said it expected revenue from index services to grow 15-20% over the next five years through expansion of product offerings beyond pure equities.
Dollar-denominated products on SGX and Chicago Mercantile Exchange benefit investors in terms of cost of trading. Also, unlike India, Singapore, Taiwan and other South-East Asian markets have a friendlier tax regime and easier margin requirements, tempting foreign investors to trade in Nifty-50 through offshore markets.
In May 2018, the Bombay high court barred SGX from launching new India derivative products and referred the case to an arbitration panel, to which SGX had agreed. In June 2018, while arbitration proceedings were on, NSE had said it was working on a “structure" to address the issues.
The spat between two exchanges has brought down the outstanding positions in SGX’s Nifty futures contract.
(Jayshree Upadhaya contributed to the story)