Singapore Exchange seeks to defuse tensions over National Stock Exchange of India in futures dispute

Singapore Exchange seeks to defuse tensions over National Stock Exchange of India in futures dispute

By: 
Bloomberg
12/02/18, 07:19 am

SINGAPORE (Feb 12): Singapore Exchange extended an olive branch to its counterpart in India as it sought to defuse escalating tensions that threaten to kill an 18-year licensing partnership.

SGX will work with the National Stock Exchange of India “toward solutions for global investors,” according to a statement on Sunday. It also noted that the two companies’ partnership goes back to 2000 and that they had collaborated “to develop and internationalize India’s capital markets.”

The statement was a response to a dramatic move late Friday by India’s national exchanges, which said they would end all licensing agreements and stop offering live prices to foreign trading venues. The steps would make it impossible for SGX to keep offering derivatives based on India’s benchmark Nifty 50. The company introduced single-stock futures for the sub-continent’s largest companies on Feb 5. NSE officials had sought a delay of those products, people familiar with the matter said last month.

“SGX and NSE are long-term partners and have collaborated since 2000 to develop and internationalize India’s capital markets,” the Southeast Asian exchange operator said. There will be orderly trading in its India equity-derivatives contracts, including the popular Nifty 50 futures, until at least August, it said.

Singapore has become a hub of offshore trading for many markets. One of the few overseas products that track Chinese-listed stocks, FTSE China A50 futures, trade in the city, as do contracts linked to Japan’s Nikkei 225. It also hosts derivatives for stocks listed in Indonesia, Taiwan and Thailand.

SGX said on Sunday that NSE’s move wouldn’t have material impact on its “immediate” financial results.

Business Interest
India’s exchanges have decided it’s in their “business interest” to stop offshore trading of products linked to their indexes to ensure that liquidity stays in the country,  Ajay Tyagi, chairman of the Securities and Exchange Board of India, told reporters on Saturday. Suspending agreements and cutting off data feeds shouldn’t be seen as a “retrograde step,” he said.

Vikram Limaye, chief executive officer of NSE, India’s biggest bourse, defended the motives behind Friday’s announcement.

“We are not being protectionist,” he said in a phone interview. “We are doing what is good for Indian markets -- and fragmenting liquidity is not.”

SGX and NSE signed a licensing agreement in March 2000 that allows futures and options based on the Nifty 50 Index to trade in Singapore. The Singapore bourse said in Sunday’s statement that it plans to develop “India-access risk management solutions.”

SGX isn’t the only overseas exchange affected by Friday’s move. NSE will also end its licensing arrangements with CME Group Inc., the Taiwan Futures Exchange and Osaka Securities Exchange, CEO Limaye said.

“This may affect our revenues, but this is the right thing to do,” he said.

Offshore Crackdown
Friday’s move is the latest step by Indian authorities to tighten control over foreigners trading products linked to domestic securities. 

Sebi said in July that participatory notes, created by foreign banks for offshore investors to trade in India without registering, must be liquidated by the end of 2020 or by the instrument’s date of maturity, whichever is earlier.

Meanwhile on Feb. 1, Prime Minister Narendra Modi’s government proposed reviving capital-gains tax on equity holdings, 14 years after the levy was scrapped to boost revenue. There was concern that an end to the tax break may upend Indian stocks which hit multiple records in the past six months.

While Friday’s statement is meant to shift liquidity back to India, the “challenge is whether investors will trade onshore, considering the capital-gains tax,” said Michael Wu, a senior analyst at Morningstar Inc. in Hong Kong.

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