Sebi will be meeting RBI officials shortly to discuss the proposal on introduction of futures trading on overseas indices at the local exchanges. The National Stock Exchange (NSE) had approached Sebi seeking approval for launching futures trading on popular global indices like S&P 500 and Dow Jones Index of US, denominated in rupees.
?While these securities are based on foreign indices, it is possible that there might be some element of foreign exchange involved in it. We have already written to RBI on this proposal and sought a meeting with them to discuss the proposal and expedite the process,? said a senior Sebi official.
Currently, the regulator is also working on a detailed regulatory framework to govern cross-listing arrangements, which is expected to be announced shortly according to the people familiar with the development. The BSE too is keen on exploring listing of overseas products once the regulatory framework is fleshed out. A person familiar with the development said that the regulator in no hurry to give approval to launch overseas indices since these products are not some thing that the Indian market is in urgent need of.
In March this year, the NSE had entered into a cross-listing agreement with Chicago Mercantile Exchange (CME), the world’s largest derivative exchange. According to the agreement, NSE have the right to create and list rupee-denominated futures contracts of S&P 500 and Dow Jones Industrial Average (DJIA) for trading on NSE while CME has been given the exclusive right to create and list dollar denominated futures contract on NSE Nifty Index. CME had already launched two indices based on NSE Nifty based on the cross-listing agreement. NSE had also entered in to a MoU with London Stock Exchange (LSE) to explore possibilities of cross listing whereby futures contracts based on FTSE 100 Index will be made available on the NSE trading platform.
The introduction of futures contract based on overseas equity indices will help domestic investors to diversify their portfolio beyond Indian borders without having the need to expose them to currency risk. This is because the products will be denominated in the local currency. “If these overseas indices were available during 2008 when Lehman Brothers collapsed, domestic investors could have easily gone short on them to protect their cash market portfolio from a potential downside since the development was hurting the US markets more than anyone else,” said a portfolio manager from a leading domestic financial institutions.