Singapore traders will not move to GIFT, even if SGX Nifty shifts there

Fund managers based out of Singapore are unlikely to shift to Gujarat International Finance Tech-City (GIFT) even if the Nifty index, which is currently being traded on the Singapore Stock Exchange (SGX), starts trading here. The National Stock Exchange (NSE) and SGX are set to launch trading in the Nifty index on the GIFT City platform before Diwali. SGX Nifty will soon be discontinued after operating for nearly two decades in Singapore, sources told BusinessLine.

As per the NSE-SGX connect strategy, both exchanges are forming a special purpose vehicle (SPV) that will be based in GIFT. Currently, the SGX Nifty has open interest of between $3 billion to $5 billion. The incumbent government wanted to bring this trading to the domestic shores. The key catalyst for GIFT is its projection as an International Financial Services Centre (IFSC) with the aim of attracting global fund managers, at least those who trade in Indian products, to relocate to India, and spur job-creation in India. GIFT enjoys 10 years of complete tax holiday.

The SGX SPV will trade on NSE’s GIFT City platform and the fund managers based out of Singapore will become the clients of the SPV. Those funds and traders who take positions in SGX Nifty will not have to move to India or get registered in GIFT City, instead they would be governed by Singapore laws, the sources told BusinessLine.

Both SGX and NSE had filed their proposals on the structure to the respective regulators in Singapore and India. The Monetory Authority of Singapore (MAS) has approved SGX’s plan, and market regulator SEBI, NSE’s proposal, the sources said. As per the plan, the SPV will conduct trading on NSE’s GIFT City platform and settle its client accounts in Singapore. In the GIFT City, the SPV will act as a front for Singapore-based investors. This way, the foreign investors who have so far stayed out of Indian jurisdiction will not have to follow the laws here, as they have reservations about Indian tax laws, which they say are fickle and uncertain. For them, Singapore’s chief attractions are its tax rates, which could be as low as 2 per cent, and easier norms, compared to India.

NSE, SGX and SEBI did not comment on email queries sent. Sources close to NSE said the core idea of the exchange was to bring volumes back to India from Singapore, with traders and fund managers expected to shift subsequently. Also, the NSE-SGX connect would be similar to the Hong Kong-Shanghai connect, which ultimately boosted trading on the Shanghai bourse, the sources said. They further explained that all the traders who would be clients of the SPV would be those who are compliant with the Financial Action Task Force (FATF) that monitors global money laundering laws. Globally, all FATF-compliant entities are allowed to trade on any exchange platform, and the SPV too will comply with FATF as well as Indian laws in GIFT City.

SEBI has approved segregated nominee account structure for foreign investors to trade in Gift City, which allows them to trade through a broker or service provider with confidentiality. Knowledge of the ultimate beneficiary of clients of such brokers is unknown to SEBI or any other authority in India unless sought. The NSE-SGX SPV will act as a broker for foreign clients. Also, a separate category called ‘eligible foreign investors’ has been ‘carved out’ and they are not required to hold a permanent account number (PAN) in India. These investors can trade on the GIFT City platform.

“GIFT may not become Singapore in five years, but we could aim to make one in 10-15 years. Priority seems to be to get volumes first and people can shift subsequently,” said Sandeep Parekh, Managing Partner, Finsec Law Advisors.

Another legal advisor said that such an SPV arrangement could hurt market trading in Mumbai, as other fund managers could opt for it due to the tax holiday and confidentiality.

The NSE and SGX were locked in a bitter court battle over de-listing of the Nifty index in Singapore. This, after the incumbent government in New Delhi raised concerns over shifting of trading in India’s market to offshore destinations. The derivative contract of the Nifty index, NSE’s largest traded product, has been traded in Singapore since 2000. On various occasions, the open index in SGX Nifty has even overtaken the NSE index in the Mumbai market. Now, NSE and SGX have come to a settlement and are ready to discontinue the Singapore Nifty and trade it in GIFT City.