Global futures association seeks talks with Indian exchanges; SGX down 7%

We believe that accessible markets are essential for the optimal growth and it allows customers to hedge their risks and manage their exposures: FIA

Washington-based Futures Industry Association (FIA) said it will seek discussion with Indian exchanges about their decision to stop trading of indices on Singapore and other foreign exchanges, even as SGX stock fell over 7 per cent after the development.

Indian stock exchanges -- BSE, NSE and Metropolitan Stock Exchange of India (MSEI) -- on Friday said they will immediately stop the trading of indices of Indian securities on foreign bourses as part of a joint effort to stymie migration of liquidity to overseas markets.

Currently, Indian stock exchanges through a licensing arrangement provide their market data at various levels to index providers for creating Indices.

Singapore Stock Exchange (SGX) however yesterday said its entire India suite of products, including Nifty, will open and operate per normal on Monday.

Shares of SGX dropped over 7 per cent to SGD 7.32 today. Some 9.2 million shares changed hands, making it one of the most active counters on the Singapore bourse in early morning trade.

Analysts have kept their ratings on SGX unchanged on Monday as the stock fell 7.1% amid doubts about the future of the market operator's Indian equity index-linked derivatives, according to Business Times.

Meanwhile, FIA in a statement said, "We look forward to discussing this announcement with the Indian exchanges and working with our members to more fully understand the consequences for derivatives markets and their customers."

"We believe that accessible markets are essential for the optimal growth and development of liquidity and allow customers to hedge their risks and manage their exposures in the most efficient way possible," FIA said.

"We have not yet had an opportunity to analyse the implications of this announcement, but it appears likely to disrupt trading on numerous exchanges around the world and alarm international investors," said FIA, a leading trade association for the global listed and cleared derivatives markets.

The decision of Indian exchanges to impose restrictions on the licensing of indices and market data is likely to impact trading on some 11 international bourses which trade Nifty 50 - the stocks of top 50 Indian companies as well as other Indian related products.

"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," the bourses had said in a joint statement.

The termination of pacts would be subject to notice periods required in respective licensing agreements.

It has been 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 bourses said.

The SGX however said it will develop and launch new India-access risk management solutions to allow global participants in SGX India equity index family of derivative products, to execute their investment activities with continuity.