NSE warns index compilers to not involve themselves in offshore dispute

The warning come after the NSE and two other bourses said they would end licensing and market data agreements with foreign exchanges

India’s biggest exchange operator, which cut ties with its international counterparts in an effort to rein in offshore derivatives, warned index compilers about involving themselves in the dispute.

Vikram Limaye, chief executive officer of the National Stock Exchange of India Ltd., said in an interview that his company’s relationship with MSCI Inc. depends on the New York-based firm telling its clients to not use its data for futures and options contracts based on Indian stocks.

His comments come after the NSE and two other bourses said they would end licensing and market data agreements with foreign exchanges, a move that shocked investors and threatens India’s international financial standing. MSCI said last week the termination was an anti-competitive step and warned that the nation’s market classification could change as a result.

“We will continue to provide all prices and data to MSCI for indexes, provided that data is not used for trading Indian offshore derivatives,’’ Limaye said on Thursday. “We have had four conversations with MSCI and have explained our position.”

An MSCI spokeswoman didn’t immediately reply to a phone call and an email seeking comment.

The move to end offshore ties is the latest attempt by India to discourage overseas trading of products linked to its markets, as it promotes a tax-free trading zone in Prime Minister Narendra Modi’s home state. Singapore Exchange Ltd. is in talks with NSE about creating a trading link to the Gujarat International Finance Tec-City, people familiar with the discussions said.

“The Indian side has been taken aback by the sharp MSCI reaction and are trying to manage the fallout,’’ Eugenie Shen, head of the asset management group at the Asia Securities Industry & Financial Markets Association, said in an interview. “It will be very difficult for MSCI to control how their clients end-use the Indian data.’’

Unprecedented Action

Derivatives linked to the benchmark Nifty 50 Index are among SGX’s most popular offerings, used by international investors to hedge their exposure to India’s $2.3 trillion equity market. NSE’s decision would mean the contracts could no longer be traded in the city-state once the agreement ends, though single-stock futures, launched in Singapore on February 5, are not affected.

MSCI, which manages indexes that are tracked by funds with trillions of dollars in assets, said on February 15 that the Indian exchanges and regulator should “reconsider this unprecedented anti-competitive action before it leads to any unnecessary disruptions in trading or a potential change in the market classification of the Indian market in the MSCI Indexes.”

Limaye said its concerns are misplaced.

“Access shouldn’t be determined by one particular contract and one particular geography,’’ he said. Other exchanges have similar policies about not allowing offshore derivatives based on their core onshore benchmarks, he said.

Bloomberg