A security guard stands behind a glass facade displaying the CNX Nifty logo at the National Stock Exchange in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

MSCI Slams Indian Exchanges' Move to Sever Overseas Ties

(Bloomberg) -- A move by Indian exchanges to stop all licensing deals with their foreign counterparts is anti-competitive and could jeopardize the country’s standing in indexes tracked by global funds worth trillions of dollars.

“If the changes are put into effect, the result will be disruptive and harmful to international institutional investors in Indian equities,” New York-based MSCI Inc. said in a statement on Thursday. It said it is monitoring the situation and warned India’s market classification could change unless the “restrictive measures” are removed.

Indian stocks have an 8.4 percent weight in MSCI’s emerging markets index, the fourth-largest behind China, South Korea and Taiwan.

The National Stock Exchange of India Ltd., together with other Indian bourses, late on Feb. 9 said they would end all licensing agreements and stop offering live prices to overseas venues. The decision is the latest attempt to discourage offshore trading and promote a tax-free business hub in Prime Minister Narendra Modi’s home state Gujarat.

"MSCI strongly suggests the Indian exchanges and their regulator reconsider this unprecedented anti-competitive action before it leads to any unnecessary disruptions in trading or a potential change in the market classification of the Indian market in the MSCI Indexes," MSCI said.

The move by Indian venues means overseas bourses including Singapore Exchange Ltd. and CME Group Inc. will be forced to stop offering equity derivatives based on domestic Indian indexes. The decision also raises questions on how India will fit in with the global financial system.

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