NSE’s Limaye Says Options Open To Stop Futures Trade From Moving To Singapore

NSE in talks with SEBI, government to consolidate futures volumes within the country.

Vikram Limaye, managing director and chief executive officer of NSE. (Photographer: Dhiraj Singh/Bloomberg)
Vikram Limaye, managing director and chief executive officer of NSE. (Photographer: Dhiraj Singh/Bloomberg)

National Stock Exchange’s head Vikram Limaye said the Singapore Stock Exchange’s plan to launch single-stock futures of Nifty 50 companies threatens to shift volumes out of India and the country’s largest bourse will consider all options to protect its business.

“There is a concern surrounding liquidity of Indian markets being fragmented and moving offshore,” Vikram Limaye, managing director and chief executive officer at the exchange, told BloombergQuint over the phone. NSE is focused on what is in the best interests of the Indian markets and, in that context, all options will be considered to consolidate liquidity in the country, he said.

SGX said on Jan. 19 that it will launch the single-stock futures starting Feb. 5. On the NSE, Nifty 50 stocks accounted for more than a third of the daily futures turnover worth Rs 93,095 crore on Jan. 17, according to data compiled by BloombergQuint. Foreign portfolio investors had a 26 percent share in the futures turnover and contributed nearly 40 percent of the outstanding contracts.

The NSE will evaluate all options and take appropriate decisions, Limaye said. “We are also working with the regulators and government to make our markets more attractive and competitive as compared to foreign jurisdictions.”

Limaye didn’t elaborate what these options are or what did the NSE discuss with the regulator and the government.

The NSE has a licensing arrangement with SGX for dollar-denominated index futures linked to Nifty 50, Nifty Bank, I.T., CPSE and Midcap 50 indices and Nifty 50 options, according to its draft prospectus filed in September 2016. Singapore was its largest index licensing customer in the financial years ended March 2014, 2015, 2016 and 2017. NSE earned 98.7 percent of the overseas index licensing fee from SGX in the year to March 2016.

The most active product on the SGX is Nifty Futures with a daily turnover of around $1 billion and $9 billion worth of outstanding contracts as of Jan. 18. That compares with nearly $3.4 billion of open interest of FPIs in Nifty and Nifty Bank Futures on the NSE.

NSE also has derivatives benchmarked to Nifty indices with three other stock exchanges—the Chicago Mercantile Exchange, the Osaka Exchange and the Taiwan Futures Exchange.

The Indian exchange has already lost volumes in index futures to SGX after the market regulator barred investments through the offshore derivatives— also called participatory notes— used by foreign investors not registered in India. The notional value of such contracts, according to data on the NSDL website, fell to Rs 5,072 crore at the end of November from Rs 47,674 crore at May-end,

Trading on SGX has its advantages for foreign investors. For one, contracts are dollar-denominated and reduce costs. The compliance and margin requirements are simpler and tax advantages give an edge to anyone taking up a hedging position in Singapore, a derivative trader at large domestic brokerage had told BloombergQuint on condition of anonymity.

NSE was aware of the risks around its partnership with foreign bourses, according to its prospectus. The arrangements with foreign stock exchanges for the listing of Nifty indices-linked derivatives has grown its index business while also introducing greater competition for trading volumes with foreign exchanges, it said.

NSE is now looking at ways to limit that risk and competition.