By Ashley Coutinho
PM Narendra Modi inaugurated the NSE IFSC-SGX Connect in Gandhinagar on Friday. Investors in India and around the world can now trade Nifty contracts listed on the NSE IFSC seamlessly following global risk-management and clearing standards. They will have real-time access to NSE IFSC market data. Here’s a quick low-down on events that led to the Connect and how it will operate:
How did Nifty derivatives products become popular in Singapore?
The NSE had a licensing agreement with the Singapore Stock Exchange (SGX) for Nifty 50, Nifty Bank and three other equity indices for the trading of derivatives products on these indices on the SGX. Over time, these products, especially the Nifty 50, became popular among foreign funds that used it to bet on Indian equities. So much so that high-portfolio flows into Indian markets came to be accompanied by an increase in trading volumes in Nifty contracts on the SGX. It was felt that overseas investors were setting the direction of Indian markets from Singapore, which commenced trading two-and-a-half hours ahead of the NSE.
What was the dispute between the NSE and the SGX?
The licensing agreement to trade derivatives products on the SGX was terminated by Indian exchanges on February 12, 2018. Subsequently, the SGX issued a circular dated April 11, 2018, for the launch of three new contracts called SGX India Futures, SGX Options on SGX India Futures and SGX India Bank Futures, which were a replica of NSE’s derivatives contracts. To prevent such launch, the NSE filed a petition before the Bombay High Court on May 21, 2018, against the SGX seeking urgent interim reliefs against the marketing, promotion and launch of these three new contracts. The high court granted an ad-interim injunction against the launch by the SGX. On May 29, 2018, the court passed a consent order and referred the matter for arbitration to the sole arbitrator, Justice SJ Vazifdar.
How did the dispute end?
Even as the matter was referred to arbitration, the NSE and the SGX were in discussions for a proposed collaboration on the NSE IFSC at Gujarat International Finance Tec-City (GIFT city) Gujarat. On September 22, 2020, the NSE and the SGX entered into a formal collaboration agreement to cement the key terms for operationalising the NSE IFSC-SGX Connect. Accordingly, an application under Section 29(a) of Arbitration and Conciliation Act, 1996, was filed before the sole arbitrator, seeking the termination of the arbitration proceedings by consent. Once the Connect goes live, the licensing agreement with the SGX for trading of derivatives products will be terminated as per the collaboration agreement signed with it.
What is the NSE IFSC-SGX Connect?
On March 28, 2022, the NSE IFSC entered into an operational agreement with SGX India Connect IFSC, Singapore Exchange Derivatives Clearing and NSE IFSC CC to operationalise the NSE IFSC-SGX Connect after all necessary regulatory approvals. Under this connect, all orders on Nifty derivatives placed by members of the SGX will be routed to and matched on the NSE-IFSC order matching and trading platform. The said Connect will deepen liquidity in derivatives markets at the GIFT-IFSC, bringing in more international participants and creating a positive impact on the financial ecosystem in the GIFT-IFSC. Broker-dealers from India and across international jurisdictions are expected to participate in droves for trading derivatives through the Connect.
How will it work operationally?
Trading will resume at 8:00 in the morning and go on till 5pm IST. Post a two-minute halt, trading will commence from 2:45 am IST. Orders for Nifty-based derivatives contracts will be routed from the SGX India Connect IFSC to the NSE IFSC for trading and execution, and later cleared and settled by the NSE IFSC Clearing Corporation, with SGX-Derivatives Clearing as the central counterparty. The Connect will use TCS’ flagship solution TCS BaNCs to facilitate Nifty trading between India and Singapore. The Connect will offer futures and options for Nifty 50, Nifty Bank , Nifty IT and Nifty Financial Services indices.
What are NLTs?
In May, the NSE and the SGX introduced Negotiable Large Trades (NLTs) from the SGX Group at GIFT City. NLTs are typically large trades pre-negotiated between buyer and seller. It is essentially an off-market trading facility that allows trading participants or their clients to arrange and transact orders away from the trading system.