SGX may go for GIFT connect for India play
Snapping of ties by Indian exchanges big blow for Singapore bourse
Offshore contracts on Indian securities gain popularity Trading volumes on Nifty in Singapore, Dubai higher than onshore market
The trend worries government, Sebi, as it dents tax collection NSE, BSE, MSE snap offshore trading ties with foreign exchanges Move hurts SGX, where Nifty is one of the most-traded contract SGX plans to devise solution to connect its investors through GIFT The Singapore Exchange (SGX) is looking to connect through Gujarat International Finance Tech (GIFT) City — an International Financial Service Centre (IFSC) in Gujarat — to continue with its strong India play.
The move comes after the Indian bourses, including the National Stock Exchange (NSE), terminated their licensing of indices and data-feed agreements with their foreign counterparts.
The move has hit the Singapore bourse hard as the ‘SGX Nifty’ is currently one of the most-traded contracts on its platform.
The NSE snapping ties would mean discontinuing trading in the SGX Nifty and other Indian contracts after the six-month notice period is over.
Sources say the SGX will soon announce a plan connecting its platform with the NSE IFSC, an international exchange arm of the NSE established in GIFT City.
Under this framework, an offshore investor can directly trade in securities offered on the GIFT platform without setting up shop.
They can place orders and settle trades from the partner exchange platform on which they are registered.
“The SGX will work jointly with the NSE towards a solution for global investors, including the possibility of developing solutions from the NSE IFSC in GIFT City,” the SGX said in a statement.
The move could prove to be a win-win for the SGX and India, which is struggling to shore up business at GIFT City.
“Investors are tracking developments in IFSC GIFT City. There are several incentives for trading from GIFT, including exemption from the capital gains tax. GIFT City will benefit from the decision of Indian exchanges to terminate the licensing agreements with their foreign counterparts,” said Suresh Swamy, partner, PwC.
In terms of cost, trading at GIFT could be a more viable option for offshore investors than dealing with onshore contracts traded on the NSE and BSE.
The government has given several tax benefits at GIFT City, including exemption of the capital gains tax and the securities transaction tax (STT).
“Such a development would be good for GIFT City because many offshore investors will be able to trade in Indian futures market through their own exchanges. The trading costs for GIFT investors are also competitive among global IFSCs. It would also enhance the liquidity of the trading platform,” said V Balasubramanian, managing director and chief executive officer, India Inx, BSE’s International exchange set up at GIFT City.
Due to price and compliance advantages, offshore investors have preferred to trade in Indian contracts from overseas exchanges. This has led to wholesale exports of India’s financial markets. The move to snap ties was to curb or reverse the trading of Indian contracts on overseas platforms.
The move to set up IFSC at GIFT City near Ahmedabad was to provide a platform to offshore investors akin to taxfriendly destinations like Singapore, Dubai, and Hong Kong.
Both the NSE and BSE has set up shop at the IFSC and launched trading in Indian equities, currencies, and commodities. The volumes, however, are yet to pick up in a big way.
In the Union Budget, the government exempted trades coming from GIFT City from the capital gains tax. There is already an exemption on the STT for investors coming through GIFT City. The government is also setting up a unified regulator for the IFSC to streamline regulatory processes, which currently fall under different regulators such as Securities and Exchange Board of India and the Reserve Bank of India.
Cross-border tie-ups between exchanges that allow investors to trade securities listed on other’s platforms are common.
Recently, Singapore and Malaysia announced a trading-link plan to access each other’s stock market. Earlier, there was a similar arrangement between Hong Kong and Mainland China.