The country's premier bourse BSE is looking to collaborate with index provider MSCI for a licensing arrangement to trade MSCI India Index futures on BSE's India INX exchange at the Gujarat International Finance Tech (GIFT) City.
The talks come in the backdrop of Indian exchanges deciding to stop licensing their indices and securities to overseas bourses, a move criticized by overseas entities including MSCI, among others.
The talks are at a nascent stage and it will be a while before the two entities hammer out the details of any licensing arrangement, said sources. "BSE has begun talks with MSCI but nothing has materialised yet," said a person familiar with the matter.
A tie-up could help the BSE to shore up derivatives volumes at INX India, and gain a healthy edge over rival NSE. "Investors today have about $5 billion open position on MSCI India index globally, and this can potentially be brought to India through the GIFT City." The cumulative turnover on the India INX since inception is about $10 billion.
An email sent to BSE went unanswered. MSCI did not immediately respond to the queries sent to it.
At present, the MSCI India Index futures is traded on ICE, Eurex and SGX exchanges. Trades on these indices will cease by August following Indian exchanges' decision to stop licensing their indices and securities to overseas bourses, according to sources.
"This is a potential fallout of the decision of BSE and NSE to stop data sharing with international exchanges," said Rajesh Gandhi, partner, Deloitte Haskins & Sells. "If BSE is successful in getting MSCI India indices to INX, it can certainly boost volumes on GIFT. The government has taken various steps in the form of regulatory and tax relaxations to encourage trading in GIFT and this will provide a platform for trading international indices on GIFT."
"BSE will benefit as MSCI India index is the second most popular index with Indian stocks as underlying after SGX Nifty," said a person from a foreign brokerage, on condition of anonymity.
The MSCI India Index is designed to measure the performance of the large and mid-cap segments of the Indian market. With 79 constituents, the index covers about 85 per cent of the Indian equity universe.
The index is based on the MSCI Global Investable Indexes (GIMI) methodology and is reviewed quarterly in February, May, August and November. During the May and November semi-annual index reviews, the index is rebalanced and the large and mid-capitalization cut-off points are recalculated.
As on February 28, 2018, MSCI India index gave returns annualised 10-year returns of 7.03 per cent compared with 8.13 per cent for MSCI Emerging Markets and 6.53 per cent for MSCI BRIC.
India INX is the wholly owned subsidiary of BSE and kickstarted operations in January 2017 and provides a common platform for equities, currencies, commodities and fixed income.
The government has already announced several concessions for IFSC investors, including exemption from paying the securities transaction tax, commodities transaction tax and stamp duty. Any income earned by FPIs from trading on the IFSC will be regarded as capital gains and will be exempt from tax from April 1. The Union Budget also announced a unified regulator for IFSC.