The resolution of the long-standing dispute over trading of Nifty contracts on the Singapore stock exchange appears near at hand with the establishment of GIFT Data Connect, which allows international traders in Singapore to access live trading data from the NSE IFSC. The next step is commencement of trading of the SGX Nifty contracts on the GIFT City exchange; the Centre should do all it can to smoothen the transition. The Nifty futures trading on the SGX has grown over the years to now account for a substantial portion of the total turnover. This migration of volume from Indian bourses not only impacted domestic liquidity, but also resulted in a loss to the Indian exchequer. The dispute intensified in 2018 when the domestic bourses stopped providing live data feed to SGX. The Singapore bourse retaliated, creating an index mimicking the Nifty50 which could be traded on the SGX. With the issue entering international arbitration, a resolution appeared far away. But the issue is moving towards an amicable settlement with both exchanges agreeing to shift the trading of the contracts under dispute to the NSE platform in the GIFT City in a way that is beneficial to both NSE and SGX.

The establishment of the GIFT Data Connect is the first step in rolling out the transition. It is heartening to note that efforts are being made to commence trading of the contracts in GIFT city by early next year. The SGX office set up in the IFSC will help route the trades from Singapore to India; international investors trading in Singapore would soon be transacting on NSE’s exchange platform in the Indian offshore financial centre. The Centre has created a very competitive ecosystem in the GIFT IFSC through tax waivers and concessions, exemptions from the Companies Act, establishing an international dispute resolution mechanism and a unified regulator in the IFSC. With the basic building blocks in place, it’s now time to work towards attracting foreign investors. This is a challenging task since international investors typically gravitate towards offshore centres with higher participation, where price discovery is better and bid-ask spreads are lower. The transfer of traders and investors in SGX Nifty contracts to the GIFT IFSC can help provide the critical mass to build a sustainable pool of investors. This influx of new investors will be beneficial since they are quite likely to invest in other indices, stocks and bonds issued and traded on the Indian offshore centre.

The RBI and the Centre should ensure that procedures for registration of investors transitioning from Singapore is as smooth as in other offshore centres. Regulators need to bear in mind that experience of these investors is likely to act as a guidepost for future investors. The infrastructure should be tested well to ensure glitch-free trading experience. Finally, foreign investors prefer jurisdiction with policy certainty, therefore policy flip-flops should be avoided.

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