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India's top bourses — National Stock Exchange, BSE and Metropolitan Stock Exchange of India — said they would stop licensing their indexes and securities data to foreign exchanges, asserting that such agreements had led trading to migrate outside of the country.
After several round of meetings with the Finance Ministry and SEBI, the exchanges decided to withdraw licenses with foreign exchange. “Exchanges or their subsidiaries/group entities or any other entity having licensing arrangement with Exchanges shall not license/provide Indian Indices and/or the data including the price of Indian securities to any foreign exchange and/ or trading platforms for trading or settling derivatives in any form in a foreign jurisdiction,” NSE, BSE and Metropolitan Stock Exchange of India said in a joint statement late on Friday.
"It is observed that for various reasons 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, which is not in the best interest of Indian markets," the statement said.
The order essentially means that foreign exchanges and trading platforms can’t use indexes and data for derivatives. Also, they can no longer trade any existing derivatives. The existing licensing agreements will end immediately, subject to notice periods, the National Stock Exchange, BSE Ltd and Metropolitan Stock Exchange of India said in a joint statement late on Friday.
Vikram Limaye, CEO and MD of NSE told CNBC-TV18, "I don’t think there is any question of being an outlier with this move. The objective is to consolidate liquidity in the Indian markets."
"NSE's contract with SGX Nifty has a six-month notice period. The data use is governed by a commercial contract. Contracts can be terminated," he said.
'Appropriate framework is in place to ensure liquidity does not move offshore. Don’t want to constrain flows into India. We will continue to share data with entities raising ETF money,' he said.
This is part of an on-going conversation between exchanges and SEBI, Limaye said.
SEBI is aware of BSE’s and NSE’s move on terminating the data-sharing contracts. Don’t see any reciprocal action by any foreign exchanges, Limaye added.
The government and SEBI feel that without licence makes product illegal and sophisticated investors will not invest in an illegal product.
As per a regulatory official said: “If NSE withdraws their license with SGX, it will not able to trade on live single stock future on top 50 companies. Even if they do, it will be a product which doesn’t have legal validity. Sophisticated investors won’t invest in an illegal product”.
On the other hand, Finance Ministry feels that the International Finance Center has been set up to cope with foreign market including Singapore.
In IFSC, the government abolished short term gain which makes IFSC at par with other markets. However, it would be difficult for exchange when FPI or FII starts trading on SGX to get back to India. Prime Minister Narendra Modi established Gift city to retain Indian market in the country and stop exporting our market to other exchanges.
Source close to development told Moneycontrol, “In this matter PMO was keeping eye on the development as it is trying to get business back into India. In this case, businesses were diverting to other country.”
Earlier, SEBI had banned participatory notes taking naked derivative positions in the Indian market. Also renegotiation of double tax avoidance agreement with Singapore stripped off the tax benefits Singaporean investors enjoyed. In the wake of the amended tax treaty and p-note ban, there is a high demand from investors to trade in Indian stocks on SGX, where transaction costs, compliance requirements, and taxation are far more favourable.
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