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SGX to launch solutions amid Indian futures spat

SGX to launch solutions amid Indian futures spat

The Singapore Exchange (SGX) plans to launch new India-access risk management solutions to allow global participants in SGX India equity index family of derivative products to execute their investments with continuity.

The move comes after India’s national stock exchanges released a joint statement last week announcing dramatic plans to stop licensing their securities to foreign exchanges, which is likely to disrupt trading on numerous exchanges.

The National Stock Exchange of India (NSE), Bombay Stock Exchange (BSE) and Metropolitan Stock Exchange of India (MSEI) said it will restrict the usage of Indian indices and market data by foreign exchanges, index and data providers.

According to the exchanges, the volumes in derivative trading based on Indian securities including indices have reached large proportions in some of the foreign jurisdictions, resulting in migration of liquidity from India.

In the case of SGX, it is a long-term partner of and has collaborated with the NSE since 2000 to develop and internationalise India’s capital markets.

‘Currently, SGX has three derivative product suites that offer investors offshore access to Indian markets, namely futures and options linked to SGX Nifty and its various sub classes linked to MSCI India, and futures linked to Indian single stocks,’ said Krishna Guha, equity analyst at Jefferies.

‘We understand that the announcement by Indian exchanges only impacts Nifty suite of products and does not impact single stock futures and products linked to MSCI India.’

NSE has 93-94% share of the Nifty derivatives marketplace globally, and non-domestic Nifty derivatives, primarily traded on SGX, only represent 6-7%, Citywire Asia has learnt.

What’s more, according to Guha, SGX Nifty account for 12% of total derivatives trading volume as of the first half of 2018 and 9% of derivatives open interest for the month of December 2017.

Apart from impact on clearing fees due to lower turnover, interest income from deposited collateral will be reduced due to lower open interest, he added.

‘There may be a second order impact on trading of INR futures and benefits of product cross-margins.

‘While not an immediate concern, it needs to be seen how MSCI is impacted by the announcement and if it has cascading effect on trading of products on SGX linked to MSCI India and Indian single stocks.

‘On the flip side, SGX will save on licensing fees, royalties and other variable costs linked to SGX Nifty products,’ he continued.

‘While we assess these recent developments and await launch of new India-access products by SGX, we maintain our buy rating on the stock. We do not anticipate any immediate change on dividends.’

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