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NSE-SGX rift deepens with India bourse filing injunction in Bombay
INDIA's biggest stock exchange has resorted to the court to stonewall the plan by the Singapore Exchange (SGX) to roll out three new India equity derivative products, deepening the rift between the two exchanges that have been jostling to protect their respective turf since February.
The SGX said on Tuesday that the National Stock Exchange of India (NSE) had notified its Singapore counterpart of its application to the Bombay High Court for an interim injunction on the three products. In other words, it is attempting to block SGX's June 4 launch of the products.
But the SGX is standing its ground on its June 4 timeline for the launch of the products, which are an alternative to its flagship Nifty 50 contracts to be delisted in August.
The delisting follows NSE's shocking move in February to end offshore trading of derivatives tied to its benchmark indices.
The SGX said in a statement on Wednesday: "Our new India derivative products, which have received the relevant regulatory approvals, will list in June 2018 and allow our clients to seamlessly transition their India risk-management exposures."
The new products are SGX India Futures, SGX Options on SGX India Futures and SGX India Bank Futures; they are designed to cushion the blow from NSE's decision to end the 18-year agreement and replace SGX's highly-popular Nifty 50 contracts.
SGX's head of derivatives Michael Syn said in the statement: "SGX has a responsibility to provide risk management tools for its global clients and ensure that there is no disruption to the marketplace.
"We have, from the onset, expressed to NSE that there is a need to maintain liquidity in the international India equity derivatives market in order to connect international participants to GIFT (Gujarat International Finance Tec-City) IFSC (International Financial Services Centre).
"We remain open to working with NSE and other relevant stakeholders to develop a solution."
Unlike its Nifty family of products, SGX's new products are not tied to the long-standing Nifty licence agreement with the NSE. The agreement was terminated by the Indian exchange to prevent trading volumes from leaking overseas, in hopes of drawing capital onshore to its primary markets instead.
Most analysts have been hopeful that the "Nifty overhang" would sort itself out and had viewed the SGX's pro-active move to introduce successor products as a positive development.
The latest development may be another setback for the SGX, which has also been in talks with the Indian exchange to sweeten GIFT's proposition to international institutional investors.
SGX's stock closed lower by 16 Singapore cents or 2.09 per cent to finish at S$7.48 on Tuesday, after it called for a trading halt in early trade, pending the announcement.
The impact of the Mumbai court's decision - it could come in as early as Wednesday, reported Indian journals - on SGX is unclear.
One market observer questioned its enforceability, given that it involves a different jurisdiction, in this instance, Singapore.
"India's intention may be to create some noise and confusion over the new products. This move has no leg (to stand on), as it involves different jurisdictions."
That may partly explain SGX's confidence. It said: "We have full confidence in our legal position and will vigorously defend this action. Our clients can continue to trade per normal."
The tension between both exchanges may be partly responsible for dampened activity in SGX's Nifty 50 futures contracts, for which trading volumes fell 12 per cent in March and 14 per cent in April on a month-on-month basis.
On its part, the SGX said it has received the relevant regulatory approvals to push ahead with its new products. That includes a nod from the US Commodity Futures Trading Commission (CFTC) - which opens the way for the SGX to offer the products to US investors - as well as, naturally, the Monetary Authority of Singapore.
The NSE has been trying to play catch up with the SGX since the former embarked on a conscious mission to draw foreign capital onshore in the derivatives space.
Last week, NSE said it snagged an exemption order from the US CFTC, which allows NSE members to trade in derivatives for US clients.
When the SGX revealed in April that it was planning to list successor products to the Nifty contracts, NSE's chief executive Vikram Limaye said the following day that the NSE hoped to have a "conversation" with the SGX to get a better understanding of the product.
Mr Limaye had said: "Post that conversation and a review of the material in the public domain and the announcement made by exchanges in February, we will need to make an assessment whether or not the products announced by SGX are compliant with the announcement made by the Indian exchanges."
Truth is, the February move by NSE had compelled the SGX to hatch a backup plan - alternative products. Now that plan is also being challenged.
One analyst said: "The SGX had no choice. NSE terminated its licence agreement which expires in August. It needs to have a seamless solution for clients to migrate to new products when the Nifty contracts end."