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SGX to roll out Nifty successor products before August

Move signals race against time before end of 6-month notice period in licensing agreement

SGX's stock gained nearly 5 per cent to finish at S$7.71 on Monday after having fallen to S$7.30 last Tuesday from S$7.89 prior to India's move.


IN a move that signals it is running out of time after India's biggest bourse decided to curb trading of offshore derivatives tied to its benchmark indices, the Singapore Exchange said it will list "successor products" to its Nifty-linked products before August 2018.

The decision to roll out successor products, details of which will be released by next month, will provide market participants with the same ability to invest and maintain their risk exposure to Indian capital markets, said SGX in a statement issued on Monday.

Investors will be able to transition seamlessly to these products before the expiry of the licence agreement between the SGX and the National Stock Exchange of India (NSE). This follows the move announced over a week ago by NSE and two other Indian exchanges to stop the trading of offshore derivatives.

August 2018 falls near the six-month notice period for the termination of the licensing arrangement between the SGX and NSE. It is also the minimum cutoff date for SGX's Indian derivatives to continue to list, trade and clear uninterrupted unless India reverses course on the recent measures that some deem "retrograde".

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"As a market operator, we have an obligation to our international clients to provide them with solutions to manage their risks. Our successor products will provide certainty and continuity for our clients. At the same time, we continue to work with NSE to create a larger pool of liquidity comprising international and home market participants," said SGX head of derivatives Michael Syn.

DBS Research viewed the latest announcement as a positive development to the recent chain of events.

Investors appear to concur: SGX's stock gained nearly 5 per cent to finish at S$7.71 on Monday after having fallen to S$7.30 last Tuesday from S$7.89 prior to India's move.

"Based on our understanding, the successor products will not require the licensing of market data from India's three main stock exchanges and will be constructed and priced on mechanisms similar to the India Single Stock Futures," said the house.

"The successor products, though not as well-established as the SGX Nifty family of products, will continue to allow access into Indian markets and feed demand for Indian offshore products."

On Feb 9, the NSE together with another principal exchange Bombay Stock Exchange and the Metropolitan Stock Exchange of India made the shock announcement that they will stop licensing their securities or sharing data with foreign exchanges to protect their turf and prevent trading volumes from leaking overseas.

Hardest hit is SGX, which counts the SGX Nifty 50 index futures as one of its flagship products. That accounts for about 12 per cent of total derivatives trading volume.

In the latest announcement, the SGX reiterated that it will continue to work with NSE to develop a link for international investors to trade on NSE's International Exchange in Gujarat International Finance Tech (GIFT) city while managing their clearing exposures through SGX.

It is understood that the SGX is dealing with two timelines - the August crunch to meet urgent needs when the licensing agreement expires and the other which is further out and involves finalising a big-picture plan on the link to sweeten GIFT's proposition to international institutional investors. Both involve talks with the NSE as well as consultation with foreign investors.

That could be tricky as international investors are understandably more eager to see a resolution to India's latest move that limits their access to the Indian capital market and ability to hedge their exposure before they even consider embracing the long-term dream scenario of GIFT.

Just last week, global index provider MSCI weighed in and urged the Indian stock exchanges to reconsider their "unprecedented anti-competitive action" which it said was clearly negative from the lens of foreign institutional investors' access to the Indian equity market.

MSCI said the changes would be disruptive and harmful to investors and warned that it could lead to a change in classification of the Indian market.

MSCI India, the most popular index among institutional investors outside the subcontinent, has a significant weightage of 8.4 per cent within the MSCI Emerging Markets Index which consists of 24 countries.

The index provider said it was monitoring the latest developments and evaluating potential impact on existing financial products and future access to the Indian market.

It is not clear if MSCI's call could bring all parties back to the table but some market watchers say it ought to - at the very least.

"What would be the point of (India) offending international investors on one end while it develops a platform (GIFT) to woo them on the other?" said one observer.

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