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India Exchange asks indexers to stay out of offshore dispute

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India's biggest exchange operator, which ended licensing deals with its global counterparts in an effort to rein in offshore derivatives, wants index compilers to stay out of the dispute.

[MUMBAI] India's biggest exchange operator, which ended licensing deals with its global counterparts in an effort to rein in offshore derivatives, wants index compilers to stay out of the dispute.

Vikram Limaye, chief executive officer of the National Stock Exchange of India Ltd, said in an interview that he is asking MSCI Inc to tell its clients to not use NSE's data for futures and options contracts based on Indian stocks.

His comments come after the NSE and two other bourses said they would end market data agreements with foreign bourses, a move that shocked investors and threatens India's international financial standing. MSCI said last week the termination was an anti-competitive step and warned that the nation's market classification could change as a result.

"We will continue to provide all prices and data to MSCI for indexes, provided that data is not used for trading Indian offshore derivatives,'' Mr Limaye said on Thursday. "We have had four conversations with MSCI and have explained our position. MSCI's concerns on our action being anti-competitive are misplaced." An MSCI spokeswoman didn't reply to a phone call and an email seeking comment.

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The move to terminate an 18-year contract is the latest attempt by India to discourage overseas trading of products linked to its markets, as it promotes a tax-free trading zone in Prime Minister Narendra Modi's home state. Singapore Exchange Ltd is in talks with NSE about creating a trading link to the Gujarat International Finance Tec-City, people familiar with the discussions said.

"The Indian side has been taken aback by the sharp MSCI reaction and are trying to manage the fallout,'' Eugenie Shen, head of the asset management group at the Asia Securities Industry & Financial Markets Association, said in an interview. "It will be very difficult for MSCI to control how their clients end-use the Indian data.'' Derivatives linked to the benchmark Nifty 50 Index are among SGX's most popular offerings, used by international investors to hedge their exposure to India's $2.3 trillion stock market. NSE's decision would mean the contracts could no longer be traded in the city-state once the agreement ends, though single-stock futures, launched in Singapore on Feb 5, are not affected.

"India contributes a big chunk to SGX's revenue and it is in Singapore's interest to resolve the deadlock soon," Juergen Maier, a fund manager at Raiffeisen Kapitalanlage GmbH, which oversees about 30 billion euros (S$48.7 billion) said by phone from Vienna. "Trading continuity needs to be restored either via a trading link to India International Exchange or some flexibility be given to foreign investors." MSCI, which manages indexes that are tracked by funds with trillions of dollars in assets, said on Feb 15 that the Indian bourses and regulator should "reconsider this unprecedented anti-competitive action before it leads to any unnecessary disruptions in trading or a potential change in the market classification of the Indian market in the MSCI Indexes." "Access shouldn't be determined by one particular contract and one particular geography,'' Mr Limaye said. Other exchanges have similar policies about not allowing offshore derivatives based on their core onshore benchmarks, he said.

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