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Indian exchanges terminate licensing tie up with foreign players

Restrict date-feed; move to curb export of domestic liquidity from overseas markets, such as Singapore, Dubai

Samie Modak & Shrimi Choudhary  |  Mumbai 

bse, sensex, bull

In a drastic move, Indian exchanges have terminated licensing agreements for use of their indices and data feeds with their foreign counterparts. The move is to curb or to reverse the export of India’s to overseas trading platforms such as Exchange (SGX) and Dubai Gold & Commodities Exchange.

“The existing licensing agreements for licensing indices, prices of Indian securities for trading derivatives on foreign exchanges or trading platforms shall be terminated with immediate effect, subject to the notice period mentioned in the respective licensing agreements,” said National (NSE), and (MSE) in a rare joint-press release.

The combined volumes of Nifty futures—the most-traded domestic equity derivatives contract—in the are more than the NSE, which licenses the index. This shift was expected to accelerate further with the introduction of single stock futures of domestic stocks on the

SGX

Currently, there is a huge amount of outstanding contracts of Nifty and other Indian securities in the The announcement, however, may not lead to any knee-jerk unwinding since notice period for the termination is up to six months, said an exchange official.

Sources said the export of domestic to overseas platforms have been a concern for the government as well as the market regulator Sebi and the latest move is to assuage their fears.

“We are trying to consolidate liquidity in the market. There are enough avenues available in India for who currently trade in domestic stocks and indices on overseas platforms,” said Vikram Limaye, MD & CEO, “It will impact our revenues but it won’t be materially high.”

Most overseas prefer trading in locations like and Dubai due to their low-cost structure unlike India, where trades attract securities transaction tax and capital gains tax too.

Also, significant tightening of vehicles such as participatory notes (P-notes)—used by who don’t want to register with local authorities—has given more impetus on these platforms.

Higher volumes overseas pinch the government as it makes a dent in tax collection, impacts liquidity and better price discovery. “The move will see a substantial surge in the revenue collection for government. This would address the concerns over liquidity moving to overseas markets,” said Motilal Oswal, chairman and managing director,

“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,” the press statement by the exchanges said.

Going ahead, domestic exchanges will not license their indices, such as Nifty or Sensex, for the launch of offshore derivatives contracts on them. The exchanges have also restricted use of market data feeds to avoid creation of products for derivatives trading based on domestic stocks in the overseas

“To ensure the move impact flows into domestic markets, we will continue to license our products to exchange-traded funds (ETFs) that bring money into India,” said Limaye.

Earlier this week, the launched trading in single-stock futures based on domestic stocks even after Indian regulatory authorities nudging the exchange not to go ahead with the move. Restricting use of real-time data feeds on prices is aimed at ensuring the launch isn’t a success.

Market players said the move by domestic exchanges would only be a partial success.

“The severe measures announced by the exchanges will definitely curb trading of domestic securities in the offshore market. However, it doesn’t mean the volumes will shift back to India. A lot of investors preferred and Dubai as the costs for trading in these markets was very low compared to India,” said a broker asking not to be identified.

Unlike India, Singapore and Dubai don’t impose tax on short-term or long-term gains. Also, these platforms don’t have securities transaction tax (STT). Moreover, they offer long trading hours of up to 22 hours.

Meanwhile, India has tried to create its own international financial services centre (IFSC) at Gift City in The platform has not yet been able to attract any significant investors or volumes as trading costs –though lowers compared to the onshore market-- still remain high compared to other overseas markets. Also, the regulatory framework remains restrictive, say experts.

First Published: Sat, February 10 2018. 01:04 IST
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