The three principal exchanges in the country NSE, BSE and MSE through a joint statement on late Friday evening stated that they shall not provide Indian indices or the data including the price of Indian securities to any foreign exchange or trading platforms for trading or settling derivatives in any form in a foreign jurisdiction. The statement stated: “The existing licensing agreements for licensing indices /prices of Indian securities for trading derivatives on foreign exchanges and/ or trading platforms shall be terminated with immediate effect, subject to the notice period mentioned in the respective licensing agreements. The other arrangements if any shall be grandfathered for a period of one month and the exchanges, Market participants, Index providers, data vendors, their subsidiary, group companies or any other relevant party shall ensure that arrangements are terminated or modified to comply with the contents of this press release”. Speaking to FE, Vikram Limaye, CEO of NSE said, “We will terminate all our Nifty licensing arrangements with whoever we have it with.” NSE has such arrangements with Singapore , Osaka, Taiwan and Siang.
This implies that Nifty contracts on all overseas exchanges shall cease to trade on expiry of the notice period required for termination of the prior contracts. In the case of the Singapore exchange, this period is six months. The implication is clear, no Indian Index or stock derivatives can be traded on any overseas exchange or platform following this move. The fairly popular SGX Nifty contract traded on the Singapore exchange will now have a permanent expiry of 6 months from now. Fears had been expressed in the recent past on the possible flight of trading volumes to overseas exchanges, owing to the tax arbitrage, especially following the recent move to levy long-term capital gains tax on exchanges. This option has now been permanently sealed. The press note clarified, that the conditions will not be applicable to products or indices traded on any exchange or trading venue in any International Financial Services Centre (IFSC) operating in India, subject to prior written permission of the licensor. The move clearly nudges foreign investors looking for differential regulatory and tax regime to migrate to the IFSC.
While not willing to wager a guess on how volumes on the platforms of the exchanges in the IFSC will pan out, he said that following the liquidity incentives, daily trading on exchanges in IFSC has presently touched $250 million (over Rs 1,600 crore). Also, issuance of any Exchange Traded Funds or Exchange Traded Notes or similar products by any entity, subject to prior written permission of the licensor will be exempted from the conditions. Limaye explained, “We have also said categorically that if we provide data to an index that has been used for ETF products, that is not something we will constrain because that is good for Indian markets. So we are not going to constrain data for raising ETF money”.
Weighing in on sanctity of the move, Limaye said, “An Indian company’s stock cannot trade on a foreign exchanges unless they have an agreement. To trade an offshore derivatives contract you need the underlying price of the security and that underlying price is only available in India with the Indian exchanges, so whether you get it directly from the exchange or you get it from a data vendor who is getting the price from the exchange. We will obviously build in an end-use restrictions for everybody who is getting data from us, saying that you cannot use this data for pricing trading or settlement of an offshore derivatives contract. You can use it for any other purpose but not for this purpose”.