SGX: Will seek 'viable solutions' after India pulls support for offshore Nifty futures

THE SINGAPORE Exchange (SGX) said that it will work with the National Stock Exchange of India (NSE) to develop "viable solutions for international investors" after India's three main bourses said they would stop licensing data for offshore derivatives linked to their domestic indices.

"SGX wishes to assure market participants that we will take all measures to maintain orderly trading and clearing of SGX India equity derivatives for our international clients," SGX said in a statement.

"We will work closely with NSE, the market participants and the regulators, over the next several months to develop viable solutions for international investors into India."

India's three main stock exchanges - NSE, the Bombay Stock Exchange (BSE), and the Metropolitan Stock Exchange of India (MSEI) - said on Friday that they will stop licensing their securities or sharing data with foreign exchanges in a bid to prevent trading volumes from leaking overseas.

This decision will hit derivatives tied to the Nifty 50 Index and the S&P BSE Sensex, but not to exchange-traded funds.

SGX, whose Nifty 50 index futures are the most popular of those contracts, will be particularly hit. Nifty contracts accounted for 14 per cent of SGX's equity index futures trading volumes in January.

SGX also recently introduced single-stock futures linked to Indian stocks. Prior to the launch on Feb 5, NSE chief Vikram Limaye had flagged that such a move would shift liquidity out of the Indian markets, and the NSE had asked SGX to delay the planned introduction of the single-stock futures.

Under NSE's existing contract with SGX, the Indian bourse must give SGX a six-month notice period.

Mr Limaye has said that the move was in the best interest of India's markets.

"We want to encourage flows into India, but we want to also make sure that liquidity doesn't get fragmented from Indian markets into multiple jurisdictions," he told the ET NOW TV channel, according to a report by Reuters.

In a joint statement on Friday, the India bourses said: "It is observed that for various reasons the volumes in derivative trading based on Indian securities including indices have reached large proportions in some of the foreign jurisdictions, resulting in migration of liquidity from India, which is not in the best interest of Indian markets."

It is not clear, however, the extent to which investors will be willing to head over to India without the offshore alternatives. Some of the hurdles to foreign capital include a recent 10 per cent tax on capital gains in securities held for more than a year. India also taxes securities transactions and equity investments held for less than a year.