SINGAPORE - The Singapore Exchange (SGX) and the National Stock Exchange of India (NSE) have launched a trading link allowing offshore investors to trade Indian equity derivatives onshore.
The move is expected to draw capital inflows to India and comes four years after a feud between the two bourses led to a setback in offshore trading of Indian futures contracts on SGX.
Formally launched by Indian Prime Minister Narendra Modi at the Gujarat International Finance Tec-City (Gift) last Friday (July 29), the NSE IFSC-SGX Connect will now let global investors trade US dollar-denominated Nifty equity derivatives through SGX, but based in Gift.
This is expected to create a larger pool of liquidity for Nifty products.
Nifty is a benchmark Indian stock market index that represents the weighted average of 50 of the largest Indian companies listed on NSE.
In a statement, SGX chief executive Loh Boon Chye said the NSE IFSC-SGX Connect will combine the growing domestic and international liquidity pools for Nifty products. He added that it will provide global investors "unprecedented access" to India's capital markets.
The Connect will redirect capital from Singapore to India via Gift, which is being positioned by the Indian government as an international tech and financial services hub.
For a start, orders from SGX's trading members including Deutsche Bank, Morgan Stanley, OCBC Securities and UBS will be routed to the NSE IFSC in Gift for trading and execution. Clearing and settlement will be done by both exchanges.
An SGX spokesperson said that currently, trading of SGX Nifty contracts on the SGX in Singapore continues concurrently with NSE IFSC Nifty contracts in Gift.
On July 29, traded volumes of NSE IFSC contracts amounted to US$678 million ($933.8 million) in notional value, while SGX Nifty contracts' total volume was US$2.3 billion. Notional value is a term often used to value the underlying asset in a derivatives trade.
India has been trying to lure foreign investors to Gift, which offers close to zero tax and US dollar contracts. SGX opened the SGX-International Financial Services Centre (IFSC) office in the city last October to facilitate trade on the new Connect.
NSE chief executive Ashishkumar Chauhan said the move will consolidate worldwide trading of Nifty products on the NSE IFSC and elevate Gift as a global destination for capital market activities.
The start of the link marks an end to a disagreement between the two bourses that erupted in 2018, when NSE and two other Indian exchanges announced that they would end an 18-year licensing agreement with overseas exchanges.
The move had jeopardised trading of the SGX Nifty 50 Index Futures contract, a popular derivative of the Indian index traded in Singapore and used by investors to hedge their exposure to the Indian stock market, as well as plans by SGX to list new Indian derivatives products in Singapore, The Straits Times understands.
NSE sued to prevent SGX from starting the new contracts to replace its Nifty 50 derivatives, Bloomberg reported. The case went to arbitration in 2018.
The two bourses started talks to come up with a solution later that year, after regulators intervened and urged them to come to an amicable resolution, leading to last Friday's announcement.
