End of Nifty futures: Fighting protectionist pressures abroad

THE Singapore Exchange (SGX) and India's National Stock Exchange (NSE), the subcontinent's largest bourse, built the Nifty futures franchise together for 18 years. The pact led to the listing of the Nifty 50 index futures on SGX, deemed an NSE milestone for the year 2000. But it is now unravelling.

The main reason: India has had a change of heart and decided to curb the offshoring of Indian equity-linked derivatives on concerns that liquidity is leaking out of the primary market into foreign jurisdictions. The move was first announced on Feb 9 when three exchanges - NSE, Bombay Stock Exchange and the Metropolitan Stock Exchange of India - said that they would cut off data feed to foreign exchanges and end licence agreements with immediate effect. The impact on SGX is hard to dismiss as it counts the SGX Nifty 50 Index Futures as a flagship product; in terms of derivatives trading volume, it is the third most popular after the Chinese and Japanese equity index derivatives on the local bourse. The Nifty and MSCI family of products accounted for some 12 per cent of SGX's total derivatives volumes in the first half of financial year 2018 ended December 2017. Following the decision, SGX's Nifty-linked products have until August 2018, at the minimum, to continue to be listed, traded and cleared uninterrupted.

India's drastic decision came days after the SGX launched its single-stock futures tracking some of India's largest companies that are part of the Nifty 50 Index. Possibly this move by SGX could have deepened India's worries over a potential bigger shift of liquidity out of its market. Evidently, India desires its domestic market to have a bigger slice of the action playing out in overseas exchanges. This may not be unreasonable considering that the derivatives are benchmarked against its own equity-linked indices.