NSE sues Singapore Exchange in the Bombay HC over India product launch

Mumbai: The National Stock Exchange (NSE) has sued the Singapore Exchange (SGX) in the Bombay High Court, escalating a dispute that threatens to leave international investors without one of the world’s most widely used offshore futures contracts.

The NSE is trying to stop SGX from launching derivatives that could replace the Nifty 50 contracts that have traded in the city-state for 18 years. 

Global funds use these instruments to hedge their positions in one of Asia’s biggest equity markets. Indian exchanges ended agreements that allowed offshore derivatives in February, leaving SGX and others scrambling.

“This is a big mess. I can’t see how SGX would go through with the launch when this is in the air. There’s a lot of gray here, because if investors do trade the new contract knowing this legal case is out there, is there legal liability that cuts through to the investors of the new contracts”, said David Shin, Asia head of global equity derivative sales at TD Securities in Singapore.

SGX, which announced the NSE’s legal action in a statement on Tuesday, said it has full confidence in its legal position and would vigorously defend itself.

The Singapore bourse’s stock declined two per cent on news of the lawsuit. The Mumbai court is expected to hear the case on Wednesday, according to people with knowledge of the matter who asked not to be named because the details aren’t public.

           NSE versus SGX

• Feb 9: Indian exchanges end data sharing tie-ups with their foreign counterparts
• Feb 12: Shares of SGX tumble 
• as analysts see pressure 
• on earnings
• Feb 19: SGX says it will launch ‘successor products’ to counter NSE move
• Apr 11: SGX announces new India products; says will migrate client positions to new products
• May 18: NSE gets US regulator CFTC approval for its equity derivatives
• May 22: NSE moves Bombay HC to stop SGX from launching new India products

“Investors having existing positions in SGX will be affected if the Mumbai court stays the start of the contract,” said Devansh Lakhani, director at Lakhani Financial Services in Mumbai. “Investors with outstanding positions may have to book losses if they aren’t able to rollover to the new contract”.

NSE spokesman Debojyoti Chatterjee declined to comment. The exchange’s move is another ratcheting up of tensions between bourses in India and Singapore amid efforts by the former to keep trading onshore.

China and Malaysia are among other emerging economies in the region that have taken steps to keep control of capital flows even as they push to further integrate into global markets. In India’s case, its been promoting a tax-free trading zone in Prime Minister Narendra Modi’s home state, known as Gift City, as an alternative to offshore centers. 

“The principal objective is to prevent India’s turnover from being affected by overseas venues,”  said Gopalan Sridhar, a Singapore-based fund manager at Aquarius Investment Advisors Pte. “At the same time, NSE is trying to increase access to international investors by increasing trading hours and allowing US clients to trade”.

US regulators last week approved allowing NSE members to accept American customer funds for trading in futures and options contracts on the Mumbai bourse. In February, India’s national exchanges said they would end all licensing agreements with overseas bourses and also stop providing live prices.