More than six months since the general anti-avoidance rules (GAAR) rollout was postponed to 2016, trading interest in the Nifty futures has maintained a shift towards Singapore Exchange (SGX).
After reporting a significant surge between February and May 2012, due to concerns over GAAR implications, both the open interest (the outstanding positions) and volume of Nifty futures traded on the SGX have stayed strong, accounting for a sturdy proportion of the domestic trading.
Average open interest on SGX Nifty Futures has been steadily rising since last year, touching 6.15 lakh shares in 2013 so far compared to 5.7 lakh shares in 2012. Over the same period, average open interest in NSE Nifty Futures has come down to 1.94 crore shares in 2013 compared to 2.48 crore shares in 2012. As a result, Nifty futures traded on SGX are now equivalent to 3.7% of NSE Nifty Futures.
In terms of average volumes, the number of contracts traded on the SGX equalled 23% of the trading volume on the domestic exchange in 2013, much higher than the 11% as of December 2011.
Market commentators acknowledge that the trading activity on the SGX remains healthy and add that a chunk of trading that shifted in the first half of 2012 has remained there.
“The prime reason for the decline in the interest in Nifty open interest on the NSE is the availability of SGX futures. In the recent past, however, the plunge in Nifty below 5,900 has affected the domestic open interest as shorts have exited the system and longs build-ups are yet to happen,” said Ravi Sharma, manager-derivatives with Prabhudas Lilladher.
However, some experts are of the opinion that the shift is structural in nature, given that since 2009, the trading activity on SGX is on a steady uptrend.
As per Siddarth Bhamre, head of equity derivatives with Angel Broking, while the SGX Nifty may have contributed to the decline in Nifty futures open interest, it is not the only reason. “While institutional participation has stabilised in the segment, many HNI traders have moved from index futures to options and that is reflecting in falling open interest”.
Not surprisingly, the contribution on index futures to total derivatives volume has dropped from 21% in May 2010 to 7% in May 2013. On the other hand, Index options now account for 75% of the total activity against 59% earlier.
In 2013 so far, the open interest in the