Offshore Nifty returns home as trading in Gift City  starts

After more than two decades, India has managed to bring home the offshore-traded Nifty from Singapore, with the erstwhile SGX Nifty, rechristened Gift Nifty, to be traded for the first time on Monday at 6:30am at Gift City in Gujarat.

This will see a spillover of better price discovery, with India assuming the role of price-setter, thanks to 62 domestic entities initially taking part in trading along with foreign investors, said V. Balasubramaniam, the managing director and chief executive of NSE International Exchange IFSC Ltd (NSE IX), a fully owned subsidiary of the National Stock Exchange (NSE) of India Ltd.

Singapore Exchange Ltd (SGX) will transfer the order book of SGX Nifty to NSE IX effective 3 July, under a September 2020 agreement for a so-called liquidity switch from Singapore to Gift City. This will facilitate the offer of Gift Nifty derivatives to foreign investors and a clutch of 62 Indian brokers who have set up units to trade in four index-based derivatives: Gift Nifty, which is the most actively traded, Gift Nifty Bank, Gift IT, and Gift Nifty Financial Services. SGX will continue to clear trades of investors trading in Gift Nifty from Singapore through a special-purpose vehicle.

“Though the derivatives transferred from SGX will remain out of bounds for resident Indians under the Liberalized Remittance Scheme (LRS) route, the Indian broker members through their subsidiaries will ensure that the order book becomes bigger in course of time, giving India control over a popular product derived from its own benchmark index—the Nifty 50,” Balasubramaniam said over the phone on the eve of the Gift Nifty launch, adding India becoming a price-setter was envisioned by Prime Minister Narendra Modi last July.

Under LRS, the Reserve Bank of India (RBI) disallows the use of the $250,000 per person per year limit for leveraged trades, including futures and options.

The Indian broker subsidiaries can sign up funds, foreign portfolio investors, non-residents and family owned offices of wealthy Indians as clients. Apart from running proprietary trades, they can trade on behalf of clients too.

On the revenue sharing arrangement between SGX and NSE, Balasubramaniam said it’s fixed at a ratio of 75:25 based on the volumes generated by NSE IX and SGX-created special-purpose vehicle (SPV).

NSE would keep 75% of revenues accruing from volumes up to a threshold at Gift and pass on the rest to SGX, while the latter would similarly keep 75% and transfer 25% to NSE accruing from Singapore. Beyond the threshold fixed, the revenue sharing would be 50:50, he explained. SGX’s SPV would continue as a clearing member of NSE IX after the liquidity switch.

The book transferred to Gift comes with outstanding trader positions of $8.04 billion worth of Nifty futures. Against this, domestic Nifty futures outstanding positions are worth over $2 billion. Outstanding positions called open interest refer to the flow of money into a market. Higher the open interest, the greater the liquidity.

The greater liquidity in SGX Nifty stemmed from the headstart in 2000 and index futures entrenching themselves in Indian markets three years after they were launched in 2001. Regulatory strictures and tighter position limits in India also gave SGX the edge, according to Balasubramaniam.

He said the chasm would get bridged with the order book and regulatory control over the product being vested at Gift.

The SGX Nifty’s last traded price on Friday was 19,364.5. Trading on the NSE IX will run for around 20 hours and 15 minutes through two sessions—6:30am-15:40 hours and from 16:35 hours to 2:45am the next day from Monday through Friday.

After the acrimony between SGX and NSE over the former’s plan to launch new products based on Nifty in 2018, the matter was resolved between the two exchanges in 2020, culminating in the 3 July Nifty switchover from Singapore to Gift City. SGX Nifty ceased to exist on 30 June.