SEBI’s P-Note ban turns boon for Dubai SE

Dubai seems to be emerging as a centre to trade Indian stocks after market regulator SEBI’s ban on use of participatory notes (P-Notes).

The Dubai Gold and Commodity Exchange (DGCX) has 10 of India’s most valued companies trading on its platform, all of which saw traction from foreign traders in July and August.

According to DGCX data, the average daily volume (ADV) for Indian stocks on its platform shot up from nearly zero to around ₹400 crore post SEBI’s P-Note ban in July.

Experts say DGCX will attract huge volumes in the next few months as more players get accustomed. Already, DGCX has emerged as the largest exchange for trading in Rupee-Dollar futures beating the BSE and the NSE.

“These are initial days and volumes will pick up sharply in the coming months as the ban on P-Notes is a significant trigger,” said an offshore hedge fund manager, who recently started testing the trading system on DGCX.

P-Note is an offshore derivative instrument, which was mainly used by foreign funds that did not want to bother with India’s compliance and tax rules.

Open positions worth more than ₹40,000 crore (over $6 billion) in equity derivatives were held via P-Notes till July 8, when SEBI said it was disallowing the instrument unless for hedging purpose. SEBI’s definition of hedging made it impossible to issue P-Notes and positions were simply wound up.

“DGCX, within the next couple of months, will list all the stocks in the Nifty index on its platform,” a source close to the Dubai bourse told BusinessLine . “This will ensure foreign investors do not have to go anywhere else to trade the Sensex and the Nifty if they do not want tax and regulatory hassles in India.”

Dubai’s reputation as a top destination for traders of Indian products is well-known. The exchange rivals both the BSE and the NSE in currency futures trading and even the MCX for trading Indian gold futures.

The ADV for rupee-dollar on the DGCX this year was recorded at around $1.25 billion. On an average, DGCX trades around 600 kg of Indian gold daily and on good days the volumes shoots up to around 1,500 kg, a DGCX official said.

DGCX offers arbitrage on US and Indian gold that is not available in India.

For foreign funds another big advantage of the DGCX is cost savings on margin money. Tax regime in Dubai is a boon for funds who were shunned by the Indian regulator for coming via P-Note.

The futures contract of the Sensex are already traded on the DGCX, the volumes for which sometimes are more than BSE.

If the DGCX lists all the 50 stocks in the Nifty, which covers a major portion of India’s economy, the exchange would be a compelling case for traders. Currently, Infosys, Reliance, Axis Bank, HDFC Bank and ICICI Bank are among those listed on the DGCX.

COMMENT NOW