Mumbai: Singapore Exchange Ltd (SGX) said on Wednesday it will list new India equity derivative products in June 2018, to provide market participants continuity with their India risk management exposures. It will simultaneously delist all derivatives contracts, including Nifty futures, which were based on a partnership with the National Stock Exchange of India Ltd.
What it did not spell out, but is apparent from a circular it sent to its trading members, is that SGX will continue to offer trading in Nifty futures and options, but only by a different name.
The new products will be called India futures and India options, and SGX will use the closing Nifty price to settle its new contracts.
“The reference value (to settle the new India contracts) will be the average of the final settlement prices of futures contracts traded on relevant exchanges that each: (i) references a broad-based India equity index covering 50 stocks listed on National Stock Exchange of India, which captures approximately 65% of its float-adjusted market capitalization; and (ii) has the same last trading day as the expiring SGX India Futures Contract. The Relevant Exchanges are: (i) NSE; and (ii) NSE IFSC Exchange,” SGX’s circular said, carefully avoiding the use of the word Nifty, for which NSE has a trademark. However, it’s evident the reference is to the Nifty, which is made up of 50 stocks and captures approximately 65% of NSE’s float-adjusted market capitalization .
This way, SGX has the best of both worlds. Its clients can continue to punt on Nifty futures, and it doesn’t even need to pay NSE any licensing fees. NSE, which had made a big show about its ban on the use of Indian indices by overseas exchanges, clearly ends up looking foolish. “It’s a nifty move by SGX,” said an executive at an international exchange.
NSE may well choose to litigate, although it will be going against historical judgment in the matter. When New York Mercantile Exchange (Nymex) dragged IntercontinentalExchange Inc. (Ice) to court on the use of its settlement prices for some over-the-counter (OTC) derivative contracts, the judge ruled in the latter’s favour. Judge John G. Koeltl said that NYMEX’s settlement prices were not copyrightable works as a matter of law, and that Ice had not engaged in copyright or trademark infringement in referencing NYMEX’s publicly available settlement prices in its OTC derivative contracts. NSE and BSE were not immediately available for comments.
The above principle is often followed by Indian exchanges as well. When MCX launched crude contracts with Nymex prices as the reference, for example, it was precisely based on the above ruling. It had no partnership with the US exchange to use its data.
In Gift City, both NSE and BSE’s international exchanges trade a variety of contracts where the underlying is traded on international exchanges. They haven’t bothered getting into licensing agreements for every global benchmark or stock they have launched contracts on.
SGX may well turn around and say, “We are following the same Ice-Nymex principle as you are.”
For perspective, Indian stock exchanges, in a joint statement on 9 February, had decided to cancel licensing agreements for providing indices and securities-related data feed services to foreign exchanges and trading platforms. The exchanges also terminated licensing agreements with overseas bourses.
The move was triggered by SGX’s decision to introduce futures contracts on the top 50 Indian stocks from 5 February even as the Singapore exchange has gradually expanded its market share in Nifty futures trading to 52%.
Kunal Nandwani of U Trade solutions says SGX’s solution is simple and elegant.
“SGX’s new Index future product seems to be very similar to NSE NIFTY future product. It shall not need the underlying constituent basket live stock prices, and its price for trading will be determined by the market participants’ view, supply demand, market makers’ bid offer prices, and projected future values. It will look up to NSE NIFTY’s expiry close price for reference only, for its own expiry,” said Nandwani, founder and CEO of algorithmic trading technology provider uTrade Solutions.
“The institutional investors segment that take exposure on Indian market via SGX, maybe satisfied with such a product and could trade in it. Though time will tell how much trading volume and open interest can it capture,” he added.