Nifty futures trade slumps 50% on Singapore Stock Exchange in March

The trading volume of Nifty futures slumped 50 per cent on the Singapore Stock Exchange (SGX) in March since the National Stock Exchange (NSE) and the BSE ended data-sharing agreements.

Nifty futures on the SGX saw an average daily trading of 53,332 lots during March, down from 108,871 in February. 

The Nifty is one of the most-traded derivatives contracts on the Singapore bourse.

Investors had started unwinding their positions from the SGX even as the exchange had assured them continuity, sources said.

The data-sharing arrangement is available for six more months. Trading of Indian contracts on the SGX will end in August.

"Investors do not like uncertainty. So whenever a policy measure such as this is adopted, they try to exit at the earliest. However, it is still not clear how many investors who use the SGX will invest directly in Indian derivatives," said a source privy to the development.

The decision by the domestic exchanges appears to be benefitting the Gujarat International Finance Tech-City (GIFT-City), an International Financial Services Centre (IFSC).

The number of contracts traded on GIFT-City rose 50 per cent to 1.87 million in more than one month. The finance centre is seen as a viable alternative to the SGX for offshore investors. At present, all trades made from GIFT-City are exempt from the securities transaction tax (STT) and capital gains tax. The compliance burden is also low for investors coming through GIFT-City.

"Foreign funds are now keen to trade from GIFT-City. The platform offers services on a par with IFSCs. Fixed costs for trading are also lower in GIFT-City due to tax benefits. GIFT-City is the most viable alternative for foreign funds using offshore platforms such as the SGX to trade in Indian derivatives. I expect the volumes to increase substantially in the coming months," said V Balasubramaniam, managing director, India INX, a BSE subsidiary operating in GIFT-City.

Derivative volumes on the National Stock Exchange (NSE) this month are 18 per cent higher than the previous six-month average. The daily average number of Nifty contracts traded on the NSE during March is 186,630, compared with the six-month average of 157,129. 

According to market participants, derivative volumes go up whenever volatility in equity markets surges. 

Experts rule out shifting the entire volumes from the SGX to onshore exchanges for several reasons. For instances, some US-based hedge funds, which are not allowed to invest in Indian futures, trade only through offshore locations.

Also, dealing in derivative contracts onshore is more expensive compared to dealing in them from a foreign bourse, since the investment will be subject to capital gains tax and STT. While GIFT-City offers both tax sops and convenience for offshore funds, there are concerns about liquidity in the platform. 
 

"These are still early days for GIFT-City. Volumes will increase once big-ticket FIIs set up shop in GIFT-City," said the source cited above.