Opinion| NSE–SGX patch up to benefit all stakeholders

Shishir Asthana

Better sense seems to have prevailed in the tussle between the National Stock Exchange (NSE) and the Singapore Exchange (SGX) in their battle for attracting foreign investors to trade in the Indian equity derivative market.

The two exchanges have reportedly worked out a solution that benefits both the parties as well as takes Indian markets a step closer to becoming an international trading hub.

Both the exchanges have jointly proposed to their regulators a possibility of using the NSE–International Financial Services Centre-SGX connect model as the way forward.

NSE – International Financial Services Centre (NSE – IFSC) is a subsidiary of NSE located at Gift City in Gandhinagar.

While the details of the deal are still sketchy, reports say the deal that is being worked out would mean that though the actual orders will be executed in Gift City, SGX would continue to take orders and route it to NSE – IFSC. Currently, all trades in SGX Nifty are executed in SGX.

So, how is this deal beneficial for both the exchanges?

First, NSE through NSE – IFSC, will be able to get trades that were going to SGX as foreign investors preferred to trade in SGX on account of currency benefits and lower cost of the transaction.

As the volumes of NSE – IFSC pick up, it would come on the radar of high volume foreign traders which would take it to greater heights.

SGX also does not have the hassles that Indian exchanges face on account of multiple taxes at the transaction level. These factors made SGX a favourite destination for foreign investors. SGX Nifty during its peak was garnering volumes of 1.5 times that of Nifty futures on NSE.

As for SGX, it will continue to get the benefit of using data from NSE for SGX Nifty and it will also have access to other products that are available on the NSE – IFSC platform. In short, investors will still route their trades through SGX, but the Singapore Exchange, in turn, will re-route it to NSE-IFSC. It is, however, not clear in which location the clearing of trades will place.

But here's the big question - will the FIIs trading on NSE move to NSE-IFSC?

For NSE as an exchange, it does not matter now, as the trade will move from one pocket to another as NSE – IFSC is a wholly owned subsidiary. But if the migration does take place, then it would affect liquidity on NSE for other players.

For Indian traders the NSE – IFSC would offer a 24-hour market which would mean lower volatility on account of overnight news flow that we witness currently.

In short, the NSE – SGX joint initiative, if it goes through, would be a win-win for all stakeholders.