After the National Stock Exchange withdrew from an agreement with SGX to trade Nifty, India’s widely-tracked derivative index in Singapore, SGX has retaliated by launching India futures and India options that will replace Nifty in Singapore from June. The catch: SGX will use the closing price of Nifty to settle its new contracts.

According to experts, simply put, the SGX has ensured a way to bypass India’s government and market authorities.

Nifty’s trading in Singapore, for more than a decade now generated huge volumes, which sometimes came to the rival domestic bourse. It was a chief cause of heart-burn among domestic tax authorities, who collected 15 per cent tax on gains from derivative trading from local players.

In February, circumstances and heated debate over shifting of India’s markets to off-shore hub forced both the NSE and the BSE to respond by saying they would withdraw from all licensing agreements with foreign bourses to trade Indian products. Now it seems, their efforts may not yield much, experts said.

“It is a sharp response from SGX, something that most foreign players wanted,” said an overseas fund manager. “Fund managers do not want large exchanges like SGX to succumb to pressure tactics from Indian authorities.”

Little option

There is a view among traders that Indian exchanges can do little when SGX or Dubai’s DGCX trades single stock futures based on Indian price as no official data feed is required for it.

“There is a need to wait and watch as to how new products announced by SGX play out. There are a lot of parameters and criteria before any trading product succeeds and only time can say that about SGX,” said Samir Arora of Helio Capital Management.

Meanwhile, the NSE said: “We are examining the announcement by SGX on April 11, 2018, regarding the launch of new SGX derivative products. We have asked for more details from SGX on the product structure and hope to have a conversation with the SGX team to get a better understanding of the product. Post that conversation and review of the material in public domain and the announcement made by exchanges in February, we will need to make an assessment whether or not the products announced by SGX are compliant with the announcement made by the Indian exchanges on February 9, 2018. We will also have a discussion with other exchanges and the regulator, once we have a better understanding and then determine the course of action.”

There is anticipation that the NSE may also go for international arbitration if the government is willing to put its foot down on curbing trading of Indian products in overseas markets.

But when New York Mercantile Exchange dragged Intercontinental Exchange to court on the use of its settlement prices for some over-the-counter derivative contracts, the judgment went in the latter’s favour.

It was ruled that settlement prices were not copyright work as a matter of law.

Lokeshwarri S.K. is Associate Editor and Head of Research, BusinessLine

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