As it returns to Gift City, the Offshore Nifty starts trading. SGX at Gift City, Gandhinagar
After more than two decades, India is now able to import the Singapore-traded Nifty, with the old SGX Nifty renamed the Gift Nifty and set to trade for the first time on Monday at 6:30 a.m. in Gift City, Gujarat.
According to V. Balasubramaniam, managing director and chief executive of NSE International Exchange IFSC Ltd (NSE IX), a fully owned subsidiary of the National Stock Exchange (NSE) of India Ltd, the fact that 62 domestic entities initially traded alongside foreign investors will result in better price discovery, with India taking on the role of price-setter.
Singapore Exchange Ltd. (SGX) will transfer the SGX Nifty order book to NSE IX on July 3rd, in compliance with a September 2020 agreement for a so-called liquidity exchange from Singapore to Gift City. This would make it simpler to supply Gift Nifty futures to international investors and a group of 62 Indian brokers who have established units to trade in the four most commonly traded index-based derivatives: Gift Nifty, Gift Nifty Bank, Gift IT, and Gift Nifty Financial Services. The most regularly traded of them is the Gift Nifty. SGX will continue to settle transactions for Singapore-based investors trading in Gift Nifty via a special-purpose vehicle.
“Though the derivatives transferred from SGX will remain out of bounds for resident Indians under the Liberalised Remittance Scheme (LRS) route, the Indian broker members will ensure that the order book grows over time, giving India control over a popular product derived from its own benchmark index—the Nifty 50,” Balasubramaniam said by phone on the eve of the Gift Nifty launch. He went on to say that India will inevitably become a price-setter.
The Reserve Bank of India (RBI) prohibits the use of the $250,000 per person per year limit under LRS for leveraged trades such as futures and options.
Customers of the Indian broker subsidiary may include funds, foreign portfolio investors, non-residents, and family-owned offices of wealthy Indians. They may deal on their own behalf as well as on behalf of consumers.
Revenue sharing agreement between SGX and NSE
According to Balasubramaniam, the revenue sharing agreement between SGX and NSE is set at a 75:25 split based on the volumes generated by NSE IX and the SGX-created special-purpose vehicle (SPV).
The NSE would keep 75% of income on volumes up to a specific threshold at Gift and transfer the remaining 25% to SGX, while SGX would do the same for Singapore revenues, retaining 75% and transferring 25% to the NSE. He said that once the preset amount was reached, the income split would be 50/50. Following the liquidity transfer, SGX’s SPV will remain a clearing member of NSE IX.
The book that was transferred to Gift had outstanding trader positions in Nifty futures worth $8.04 billion. In comparison, there are about $2 billion in outstanding domestic Nifty futures holdings. Money entering a market is referred to as open interest or open positions. With greater open interest, liquidity rises.
The SGX Nifty’s superior liquidity is due to its early launch in 2000 and the creation of index futures in Indian markets three years after its debut in 2001. According to Balasubramaniam, SGX also benefited from regulatory constraints and tougher position limits in India.
The vacuum would be addressed, he claimed, with the order book and regulatory power over the items passed to Gift.
Timing for Trading
On Friday, the SGX Nifty was trading at 19,364.5. Monday through Friday, trading on the NSE IX will take place in two sessions, from 6:30 a.m. to 14:40 p.m., and from 16:35 p.m. to 2:45 a.m. the next day, for a total of around 20 hours and 15 minutes.
Following a spat between SGX and NSE over the latter’s plan to launch new Nifty-based products in 2018, the matter was resolved between the two exchanges in 2020, resulting in the 3 July Nifty switchover from Singapore to Gift City. On June 30, SGX Nifty ceased to exist.
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