SGX heads for arbitration with NSE amid Nifty dispute

S'pore bourse points to "uncertainty" caused by court action; MAS urges speedy resolution to row

Published Tue, May 29, 2018 · 09:50 PM
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Singapore

THE Singapore Exchange (SGX) will head for arbitration in India to thrash out its ongoing dispute with the National Stock Exchange of India (NSE), with NSE fighting to stop SGX from launching new derivatives products meant to address SGX's impending loss of Nifty 50 futures contracts.

On Tuesday, the Bombay High Court said the decision on the injunction is expected to be settled by June 16. SGX will hold back the launch of its new India derivatives products, pending the outcome of the arbitration. The products were originally slated to be launched on June 4.

The saga unfolded when the Indian national exchanges said in February that they would end all licensing agreements and stop offering live prices to overseas venues.

For SGX, that move put the trading business of its popular Nifty 50 futures contracts in jeopardy.

With the Nifty 50 futures contracts due to be delisted in August, SGX in April said it would launch an alternative set of products that would provide a similar form of hedging for global investors with exposure to the US$2.3 trillion Indian equity market.

The SGX decision was then met with an additional salvo from NSE in the form of an interim injunction filed by its subsidiary, the India Index Services and Products Ltd (IISL), just last week.

In a media statement, SGX said it was unable to contest the May 21 injunction as it was not given notice of the application for the court order. It said it has been engaged in proceedings in the Bombay High Court since May 23. "SGX will contest the interim injunction and reserves all rights in respect of damages caused by IISL's action."

SGX will also continue listing SGX Nifty contracts until August this year, as contractually provided for under its licence agreement.

But SGX highlighted the "uncertainty" that the court action has caused, noting the adverse impact on international investors who need to manage the risks of their exposures to the Indian market.

This "significantly diminishes access to, and interest in the capital markets in India", it added.

"SGX remains open to a collaborative long-term solution that will benefit Indian markets."

Observers point out that there remain question marks over whether an Indian high court has jurisdiction over the case, given that the products in dispute are to be traded in Singapore.

The Monetary Authority of Singapore (MAS) has weighed in as well. An MAS spokesman said the ongoing commercial dispute over SGX's plan to launch new India equity derivative products is disruptive for international institutional investors in Indian equities.

"The range of available financial instruments for investors to hedge exposures and manage risks in Indian equities will be reduced. A prolonged dispute will impact the accessibility of the Indian equities market to international investors," the spokesman said.

"MAS urges all parties concerned to work together to find an amicable solution that will continue to encourage investments in the Indian market. A speedy resolution to the dispute will be in the best interest of all parties concerned."

The Nifty 50 is a benchmark index that tracks 50 Indian stocks including ICICI Bank, Tata Consultancy Services, and Reliance Industries.

The alternative new contracts from SGX would reference stock information that SGX deems as public information, in the same way that the existing single stock futures of Indian stocks from SGX are doing. Observers point out that while the Indian exchanges are looking to block data transmission, they should not be able to block the use of certain trading information, such as on single stocks, which are deemed as facts.

The Bombay court ruling comes amid months of tensions between SGX and NSE that began publicly when India's national exchanges called an end to all licensing agreements and the transmission of live prices to overseas venues. This affected not just Singapore but also other bourses in Chicago and Dubai.

The move drew sharp criticism from global index manager MSCI, which called it an "unprecedented anti-competitive action".

The ongoing conflict has ripped at an 18-year collaboration between SGX and its Indian counterpart.

And without offshore alternatives from international bourses such as SGX, offshore investors remain in limbo over ways to hedge their exposure to the Indian markets, especially with the August expiry of the Nifty 50 futures contracts looming.

SGX holds a significant market share in the Nifty 50 futures markets, with just over half of the daily average traded volume done on SGX.

The Nifty 50 futures remain the third most actively traded derivative contracts found on SGX after the FTSE China A50 Index futures and the MSCI Taiwan Index futures. This comes even as the ongoing uncertainty has hurt the Nifty 50 futures' trading volume on SGX. In April, this was down 14 per cent over the month to 1.65 million contracts.

The Business Times understands that a cross-border trading link allowing investors in Singapore to trade derivatives on exchanges in the Gujarat tax-free zone, or Gift City, is also off the table at this point. NSE, India's largest bourse operator, is the partner on the other end. Observers point out that such a link would mean years of preparation to get investors and regulators on board, but the link was expected to be ready in a matter of months.

SGX in April reported a 10-year record high in its fiscal third-quarter net profit of S$100.5 million, up 21 per cent from the same period a year earlier. Derivatives revenue rose 20 per cent to S$90.5 million, contributing to 41 per cent of total revenue, compared to 37 per cent a year ago.

Shares of SGX closed on Monday at S$7.37, down two Singapore cents. Singapore markets were closed on Tuesday due to a public holiday.

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