FIIs shift trading in Nifty futures to Singapore

Foreign institutional investors (FIIs) are slowly shifting futures trading in the popular Nifty index to the Singapore Exchange (SGX) as a series of regulations, including curbs on investments through participatory notes (P-notes) and turmoil in the domestic financial markets have made investments in India less attractive.

MOVING OUT

The value of SGX Nifty OI has risen from Rs 1,130 crore to Rs 1,580 crore after Sebi imposed curbs on P-note investments last October

During the same period, the value of NSE's Nifty futures OI fell from Rs 19,000 crore to Rs 18,070 crore, according to an Edelweiss Securities study

There has been a notable shift in Nifty open interest (OI) positions from India to Singapore. For instance, the value of SGX Nifty OI has risen from Rs 1,130 crore to Rs 1,580 crore after the Securities and Exchange Board of India (Sebi) imposed curbs on P-note investments last October. OI refers to derivative contracts that have not been squared off.

During the same period, the value of NSE's Nifty futures OI fell from Rs 19,000 crore to Rs 18,070 crore, according to an Edelweiss Securities study.

The share of SGX Nifty, as a percentage of the total Nifty futures OI, rose from 5.6 per cent to 8 per cent immediately after the P-note curb and now stands at a robust 31.5 per cent.

Low transaction costs (only 2-3 basis points in the absence of securities transaction tax) and the absence of P-note complications are some of the reasons for the gradual shift to Singapore, noted the study.

"After the P-note regulations by the Sebi in October last year, we noticed a gradual shift in Nifty open interest positions from CNX Nifty (India) to SGX CNX Nifty, as was expected," said the study undertaken by analysts Yogesh Radke and Saifullah Rais.

Another factor that led to an increase in the SGX Nifty futures volumes was the reduction in contract sizes from $10 to $2 from November 20 last year. This had a positive impact on liquidity, driving the open interest value to Rs 36 billion.

"By the 14th of January, NSE Nifty was well above 6,000 levels and the SGX Nifty open interest build-up was 5 times higher than what was witnessed between January and June 2007," says the study.

During the downward plunge from January-end till March 31, the open interest on SGX Nifty was worth Rs 91 billion, contributing to a healthy 31.5 per cent of the total outstanding Nifty open interest. The Nifty futures open interest on NSE during the same period was worth Rs 198 billion.

"Since 23 January, more than 30 per cent of the total open interest build-up in Nifty's current month futures has taken place on the Singapore Exchange," the study noted.