Legal experts said SGX’s move did not infringe any rules as these products do not track any benchmark index that is intellectual property of domestic exchanges.
Further, the contracts won’t track the original price movement on the NSE as the settlement price for these will be the average of the final settlement prices of futures contracts traded on the NSE.
“Legal action looks difficult as settlement data is publicly available on the exchange website. However, since the SGX India contracts will not be tracking the price movement of the underlying security on a real-time basis, these contracts might not become as popular as SGX Nifty,” said Sandeep Parekh, founder, Finsec Law Advisors.
“We are examining the matter and discussing with SGX to better understand the product. Any future course of action will be dependent on our assessment of the situation after getting a full understanding of the situation and it would be premature and incorrect to speculate at this time on what that might be. We will have a discussion with other exchanges and the regulator once we have a better understanding of the situation. We have been in discussions with SGX and regulators to look at alternative structures to transition the SGX liquidity to Gift-City,” said an NSE spokesperson.
According to sources, efforts to provide Gift connectivity are facing operational impediments.
“There is no consensus over the issue of where the Gift trades would be settled and their tax implications. Further, the tax department has not agreed on certain conditions pertaining to remittances,” said a source.
There are also issues of eligibility of participation of several US-based hedge funds as bourses operating at Gift do not have clearances from the US’ Commodity Futures Trading Commission (CFTC), which SGX has obtained for trades in Singapore.
“If SGX goes ahead with these products as planned, it could result in shifting of volumes back to SGX, which could be at the expense of volumes on Gift and local exchanges. However, the extent of their success needs to be seen as these contracts will not track the underlying security prices on a real-time basis,” said Rajesh Gandhi, partner, Deloitte India.
SGX, in association with the NSE, has been offering Nifty futures on its platform for more than a decade now. Over the years, the product became very attractive among foreign portfolio investors (FPIs), thanks to lower transaction costs and compliance burden. This led to export of the Indian derivatives market to Singapore. At its peak, the volume on SGX Nifty was higher than onshore Nifty futures. Not just Singapore, Indian derivatives products were also offered in Dubai and Chicago. In a bid to contain this export of volumes, Indian exchanges snapped their ties with their overseas peers.