On Feb. 9, India’s three main stock exchanges issued a statement saying they will stop licensing their stock indexes and market data to foreign exchanges and index providers in order to curtail offshore trading of equity index derivatives based in Indian stocks. The move is aimed at exchanges such as CME Group, Eurex and Singapore Exchange that list index futures and options that derive more than 25% of their value from Indian stocks. The restrictions also affect index providers that use market data from exchanges to create indices that track stock markets in countries such as India.
“It is observed that for various reasons the volumes in derivative trading based on Indian securities including indices have reached large proportions in some of the foreign jurisdictions, resulting in migration of liquidity from India, which is not in the best interest of Indian markets,” said the statement, which was issued by BSE, the Metropolitan Stock Exchange and the National Stock Exchange.
The surprise announcement triggered a critical response from MSCI, a leading provider of stock market indices. On Feb. 15 MSCI issued a statement warning that the restrictions on offshore trading in Indian stock index futures and options could result in an “unprecedented disruption” of trading and a reclassification of the Indian market in the MSCI indexes. MSCI urged the exchanges and their regulator, the Securities and Investments Board of India, to reconsider “this unprecedented anti-competitive action” and warned that the restrictions will harm international institutional investors in Indian equities.
On Feb. 19, SGX announced several measures to address the potential disruption of trading in the Nifty futures and options that trade in Singapore. SGX said that it will list successor products before August 2018, when its current license expires, that will provide market participants with the same ability to invest and maintain their risk exposure to the Indian capital markets. SGX also said it will work with NSE to develop a trading link with a subsidiary of NSE located in Gujarat International Finance Tech city, a business hub that offers tax and regulatory treatment designed to attract international investors.
“As a market operator, we have an obligation to our international clients to provide them with solutions to manage their risks,” said Michael Syn, head of derivatives, SGX. “Our successor products will provide certainty and continuity for our clients. At the same time, we continue to work with NSE to create a larger pool of liquidity comprising international and home market participants.”