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Tussle between NSE, SGX hits Nifty futures trading

PALAK SHAH Mumbai | Updated on June 03, 2018

The NSE-SGX dispute started in February, when the NSE withdrew from an 18-year-long pact with the Singaporean bourse   -  Reuters

Open interest falls to $3.3 billion on NSE, halves to $4.9 billion on SGX

The dispute between the National Stock Exchange and the SGX seems to be having an impact on Nifty futures trading. Interest in India’s top traded derivative index has witnessed a fall since February this year.

Coincidentally, the dispute between SGX and the National Stock Exchange (NSE) started in February, when the NSE announced its withdrawal from an 18-year-long agreement with the Singapore bourse.

Data shows that open interest on SGX traded Nifty futures is down by 50 per cent since January 31. Trading in the onshore market on the NSE is also down by 25 per cent.

The notional value of open interest for Nifty futures on the NSE stood at around $4.4 billion on January 31 and the same was at $9.8 billion on the SGX. It has fallen to $3.3 billion on the NSE as on June 1, and halved to $4.9 billion on the SGX, data compiled from published figures of the exchanges showed.

Uncertain future

Experts say the fall in open interest in the Nifty index partly could be attributed to the dispute as sentiments were hit. But it could readjust in the longer run once there is certainty on the issue. To counter the NSE’s February move, the SGX retaliated on April 11 by announcing its own India futures index, which would be based on the closing price from India’s Nifty. But to the surprise of traders, NSE blocked SGX during the last week of May, taking the matter to court.

While THE SGX Nifty could continue trading till August as the agreement between both exchanges facilitates it, open interest was falling on future uncertainty and also subdued market sentiment. Arbitrage trading between NSE and SGX positions could now come to a halt. The open interest in other derivative products that NSE offers is still robust. The open interest for stock futures on the NSE stood at over $8.5 billion or nearly ₹57,000 crore. The NSE has a total open interest of more than $75 billion or ₹5.12 lakh crore, nearly 80 per cent of which is in the options segment. Options trading for Indian products is not highly active on the SGX.

Trading volumes

“SGX could try to give an argument that trading volumes in India could fall if there is an attempt to muscle Singapore but we are relying much on the past data to come to such a conclusion, which may not be true in the long run,” said the research head of a Mumbai-based institutional brokerage house.

NSE and SGX will be engaging in arbitration proceedings to settle the dispute based on an order from the Bombay High Court. NSE’s attempt will be to block SGX from launching an India index and bring the trading volumes onshore. If the arbitration goes in favour of NSE, SGX will try to establish a trading link between Singapore and Gujarat GIFT city, India’s version of a tax exempt off-shore destination.

Published on June 03, 2018

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