‘GIFT Nifty is a signal to global financial markets that IFSC is now in the game’

Over the weekend, Singapore Exchange (SGX) has managed to transfer all the open interest to our clearing corporation. From 6.30 a.m. today, all the orders are being routed through SGX to NSE IX through the special purpose vehicle - SGX NSE Connect. The total open interest shifted to NSE IX is $9.1 billion (including $8.4 billion in futures) with a total 2,37,108 contracts.

As part of SGX-NSE Connect, there are four products under the GIFT Nifty series — Nifty 50 F&O, Bank Nifty F&O, IT Nifty F&O and Fin Nifty F&O. Additionally, we have our weekly options contracts, where SGX Connect is not participating. They are only looking at monthly contract series. There are three near-month contracts and three serial-month contracts which are the quarterly contracts.

So, currently, we offer monthly contracts for July, August and September, and quarterly contracts for December, March 2024 and June 2024. So effectively, at any point of time, there will be up to 12 months of F&O series available for trade. This is the same design as in SGX. Today, at NSE IX, in addition to the four derivatives products, we also offer single-stock futures. So whatever is available in the Indian domestic market, will also be available at NSE IX.

The settlement would be T+1. Since the GIFT Nifty operates for 21 hours, we have kept two sessions. The first is the morning session, which starts at 6.30 a.m. and lasts till 3.40 p.m. The second is the evening session that starts at 4.35 p.m. and goes on till 2.45 a.m. the next morning. The evening session is called T+1 session. The trades executed on Monday evening session and Tuesday morning session will get settled together on Tuesday afternoon.

There are two sets of traders. International participants, who are already trading on SGX — they can either continue placing the orders in the SGX and the FIX API engine will route these orders into NSE IX through the Connect mechanism and the matching will happen at NSE IX, or the traders can use direct market access wherein they place orders in their own servers in the NSE IX co-location facility and from there, the matching will happen on NSE IX. So, those traders who have a low latency strategy will want to be on the co-location. And those not sensitive to latency, will continue to put orders into Singapore servers. The second set of traders are on the Indian side. The IFSC brokers will also add to the liquidity pool. So, effectively, we are merging the fragmented markets and participants into a common liquidity pool. The idea was not to change anything per se, but create more liquidity. So, there is a pool of international traders participating on SGX; on top of it, we are going to add the NSE IX participants. That will bring more liquidity for this product.

For the last 20-25 years, many Indian financial products were traded offshore; effectively, we exported our markets. The currency pricing and equity benchmark pricing, in terms of Nifty pricing, were discovered abroad. The phase-one objective of IFSC is getting delivered — which is on-shoring the offshore. As a major economy, we want to be in control of our own assets and our prices.

GIFT Nifty is the first big win for IFSC in terms of bringing home the offshore market. We are also democratising it because now Indian trading members have a methodology to participate in India’s own IFSC. This is a signal to the global financial markets that IFSC is now in the game.

In 2000, SGX reached out to the NSE for Nifty derivative products. It was basically to allow foreign participants to hedge themselves in the offshore markets. In India, we always had a gradual reform process. Thus, SGX enjoyed the regulatory arbitrage and had more liberal rules to attract foreign participants to come on their markets. The regulatory arbitrage is now over. But we are ensuring that the SGX-NSE Connect is a win-win proposition and that the commercial interests are protected. The Connect arrangement is for five years with a renewal clause for another two years.

Under this SGX-NSE Connect arrangement, the entire trade will happen only on NSE IX. Earlier, SGX used to pay licensing fees to NSE’s index company NSE Indices Ltd. We wanted to ensure existing revenues were protected. So, under the agreement, whatever amount of trades come from the Singapore side, they will keep 75 per cent of that revenue and 25 per cent will go to NSE IX. And from the IFSC side, whatever NSE IX brings in terms of liquidity pool, NSE will keep 75 per cent of that revenue and pass on 25 per cent to SGX. This is applicable till a threshold limit of average volumes, beyond which if the pie grows, then the share will be equal at 50-50.

It’s too difficult to estimate. But we feel that the liquidity pool will become larger than what it used to be once the Connect mechanism settles. There is now an additional number of players who would participate here — about 62 trading members in NSE IX have come from India and are setting up their full-fledged subsidiaries. So, the volumes will go up significantly.