Men ride on an escalator past an electronic screen and ticker board displaying stock figures at the Singapore Exchange Ltd. (Photographer: Ore Huiying/Bloomberg)

NSE, SGX Submit Plan To Trade Through Gujarat Finance Hub

The National Stock Exchange and its Singapore peer worked out a solution for a trading link through the international finance hub in Gujarat to help overseas investors hedge risks in one of Asia’s largest markets.

India’s largest bourse and the Singapore Stock Exchange recently submitted a joint proposal to respective regulators on a NSE-International Financial Services Centre-SGX connect model, Loh Boon Chye, chief executive officer of SGX, said on the sidelines of the exchange’s second-quarter earnings in the city-state. That model was finalised based on feedback from international participants, Chye said.

The regulators in the two countries had intervened in July last year, urging the squabbling partners to find a solution after Indian exchanges stopped sharing pricing data with overseas peers to prevent volumes from shifting overseas. That came after SGX announced its plan to offer single-stock Nifty 50 futures, which contribute more than 85 percent of the futures turnover at the NSE.

The new plan would allow foreign investors based in Singapore to trade in Indian indices and stocks on the NSE’s exchange in the GiFT City in Gujarat, Prime Minister Narendra Modi’s home state. The model is similar to link that China has between Hong Kong and Shanghai exchanges.

The NSE has yet to respond to BloombergQuint’s emailed query seeking clarity.

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Still A Long Way To Go

Though the initial proposal has been submitted, a lot of work needs to be done on modalities involving risk management and settlement of trades, said a senior exchange official on the condition of anonymity as he is not authorised to speak to the media. Since the contracts are denominated in dollar, institutional investors shouldn’t have a problem, he said.

NSE-IFSC Nifty and stock derivative contracts are dollar-denominated, similar to those on the SGX that mirror NSE main board.

For the connect, both exchanges will have to set up clearing corporations. The SGX has been pushing for clearing contracts for its members who trade through the exchange in Singapore.

A decision is yet to be made, said the official quoted earlier. It needs to be decided whether the settlement happens at each end or is netted, the official said.

The proposal is a way forward for both the exchanges which entered into arbitration last year before the regulators intervened. The process will take time as the proposal needs to be vetted by the Securities and Exchange Board of India and the government, which is busy with the upcoming budget, said the official.

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