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SGX, NSE aim to trade Nifty products via Gift City by end-2020

Regulators support proposed NSE International Financial Service Centre-SGX Connect

During the fiscal years 2017 and 2018, trading volume of the Nifty 50 futures on the SGX was 22.45 million contracts, accounting for about 11 per cent of derivative trading on the exchange.


SINGAPORE Exchange (SGX) and the National Stock Exchange of India (NSE) have received the nod from their respective regulators for a new trading model which will see India's Nifty futures contracts on SGX executed in International Financial Services Centre (IFSC), Gift City, Gujarat, instead.

The proposed NSE International Financial Service Centre (IFSC)-SGX Connect aims to bring together the trading of Nifty products in Gujarat International Finance Tec-City (Gift) and create a larger pool of liquidity comprising international and home market participants, the two exchanges said.

The latest proposal, announced on Tuesday, puts to rest the 18-month long tussle between India's NSE and SGX over the trading of the popular Indian derivative products on SGX.

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Under the new arrangement, which is subject to further approvals from relevant Indian authorities, all Nifty trade orders from Singapore will be routed to a special purpose vehicle (SPV) to be set up by SGX in Gift City - India's version of a tax exempt off-shore destination - for execution. Clearing will still be done by SGX.

The arrangement is the first of its kind and requires several regulatory exemptions, especially since the new model will see the additional interface in the form of SGX's SPV between a client and an exchange, in this case, NSE IFSC.

SGX and NSE aim to work with all key stakeholders to make the NSE IFSC-SGX Connect operational before the end of 2020, subject to members' readiness and receiving all relevant approvals. Both exchanges are also working to discontinue related arbitration proceedings. Meanwhile, all Nifty futures will continue to trade as per normal on SGX.

SGX's chief executive officer, Loh Boon Chye, said India is an important market for international investors and SGX is committed to collaborating with NSE and other stakeholders to build connectivity and access to one of the fastest growing economies in the world.

"As Asia's most international and connected multi-asset exchange, we are committed to providing our global institutional clients with open, single-point access to Asia. Our comprehensive portfolio investment and risk management solutions across equities, fixed income, currencies and commodities cover close to 100 per cent of Asia's gross domestic product."

For Vikram Limaye, managing director and chief executive officer of NSE, the partnership with SGX is "a great opportunity to build vibrant markets in Gift City" which can serve the needs of home and international stakeholders.

"We are working on varied product offerings to make Gift City the hub of activity for all India access products across asset classes for international investors and a gateway for home investors to access international markets,'' he said.

The SGX Nifty saga unfolded when the Indian national exchange said last February that it would withdraw from an 18-year licensing agreement with SGX and stop offering live prices to overseas venues, jeopardising SGX's Nifty 50 futures contract business.

With NSE trying to assert its right over one of its flagship products, the Nifty 50 index futures, and draw trading back to India, SGX planned to launch an alternative set of products that would provide a similar form of hedging for global investors with exposure to the US$2.3 trillion Indian equity market.

On April 11, 2018, the SGX announced it would launch three new derivative contracts called SGX India Futures, SGX India Options and SGX Indian Bank Futures.

SGX's decision was met with an additional salvo from NSE in the form of an interim injunction filed by its subsidiary, the India Index Services and Products Ltd (IISL).

The Business Times understands that initially, SGX and NSE had proposed to establish an inter-exchange connectivity in line with Shanghai-Hong Kong stock connects.

However, both the market regulators - the Securities and Exchange Board of India (Sebi) and Monetary Authority of Singapore (MAS) - have expressed reservations about the proposal, prompting the exchanges to come up with the latest proposal.

During the fiscal years 2017 and 2018, trading volume of the Nifty 50 futures on the SGX was 22.45 million contracts, accounting for about 11 per cent of derivative trading on the exchange.

In FY2019, SGX Nifty futures were the fourth most active contracts.

SGX ended at S$7.90, up one Singapore cent on Tuesday.