After success with S&P Nifty, the Singapore-based exchange wants to extend this for individual stocks, say sources.
India’s top listed companies may soon be traded on the Singapore Stock Exchange (SGX). After the success of S&P CNX Nifty futures on its platform, SGX plans to widen its India basket by introducing trading in single-stock futures.
According to exchange sources, top officials of SGX met those of the Securities and Exchange Board of India (Sebi) and National Stock Exchange (NSE) recently, to discuss the possibility of listing individual Indian stocks. The plans are in the initial stages. An SGX spokesperson said they would not comment on media speculation. The NSE did not respond to an email asking if there was any talk with SGX or a licensing agreement with regard to single-stock futures.
Though SGX holds a five per cent stake in the Bombay Stock Exchange, it has partnered with NSE in India through a licensing agreement for trading Nifty futures in Singapore. If the current efforts by SGX bear fruit, it would be the first time that Indian stock futures would be traded outside the country.
What SGX wants to capitalise on is the higher cost of trading in India. The Securities Transaction Tax and stamp duty are major constituents of this. Also, brokers say that foreign institutional investors could prefer SGX, as they can cut on currency hedging cost, which saves them another five to six per cent of trading expense. While the Nifty is trading around 5,000, the Defty (a dollar-denominated gauge of the index) is trading around 3,500, causing more pain for dollar investors.
“There are no statutory costs involved for trading on SGX. Another major boost for large institutional and proprietary traders is that Nifty contracts on SGX are dollar-denominated. Most foreign funds are bleeding on account of a sharp fall in the rupee this year, while those who take positions on the SGX would have avoided this risk to their portfolio,” said Rajesh Behati, managing director of Crosseas Capital Services, which trades on both SGX and Indian exchanges.
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Statutory costs and other charges, excluding brokerage, is 0.013 per cent of the trading value in the futures segment in India. This is as low as 0.003 per cent on SGX (see table). However, it is a volumes game. Since FIIs will operate mostly through the exchange, SGX stands to gain. Also, FIIs will get arbitrage opportunities between the India and Singapore markets.
Currently, derivatives contracts of two of the benchmark equity indices, the Nifty of NSE and Sensex of BSE, are available for trading outside the country. While there is little trading taking place in the Sensex futures on the Eurex in Frankfurt, where it is listed, the Nifty index is a major attraction on the SGX.
Volumes in the SGX Nifty had shot up sharply in 2008, after Sebi proposed the phasing out of participatory notes. The proposal was later reversed.
| THE SINGAPORE ADVANTAGE | |||
| Type of charges | Futures segment in India | Options segment in India | SGX |
| Exchange transaction charges | 0.00% (Rs 200 per cr) | 0.05% (Rs 5,000 per cr) on premium value | Variable |
| Fees by regulator (Sebi/MAS) | 0.00% (Rs 10 per cr) | 0.00% (Rs 20 per cr) on premium & exercised/ assigned value | Nil |
| Service taxes (India)/GST (Singapore) | 10.30% | 10.30% | 7% (it is allowed as rebate) |
| STT | Rs 1,700 per cr on sell side | 0.13% (Rs 12,500 per cr) on excercised value | Nil |
| Stamp duty | Charged as in rules of state the client resides in | Nil | |
| Clearing fee | Nil | Nil | $0.6 per lot ($0.3 for prop traders) |
| Benifits involved | |||
| Dollar-denominated: Will cause less pain during currency fluctuation | |||
| Less FII disclosure requirements: Fund not wanting to trade through P-notes can take positions on SGX, as P-note issuers have been asked to keep identity of client handy in India | |||
| Lower cost structure: Lower exchange clearing fees, no transaction and capital taxes, Interest payable on margins | |||
| Extended trading hours: Trading is available from 6:30 am in Singapore | |||
| Availability of cross-product margins offset | |||
Trading in Singapore starts a couple of hours before the BSE and NSE, thereby indicating the way markets are headed. The same could be seen for individual stocks in the future.
"The SGX Nifty is the chief competition for NSE. In future, too, competition for Indian exchanges will come more from foreign players. If one goes by the activity in Nifty in Singapore, it makes sense for SGX to launch Indian stock futures, too," said an analyst tracking the exchanges.
Compared to 2010, Nifty futures rose 19 per cent to 1.2 million contracts on the SGX in October this year.
The current trading volumes of Nifty futures are still small compared to their 2008 levels, when Nifty futures had recorded a whopping 762 per cent growth, while those for other Asian indices grew a mere 16-24 per cent. According to the SGX data, Nifty futures generated 20 per cent volume on the exchange out of 62 million contracts of all major Asian indices traded on it in 2008. On an average, 12.43 million Nifty futures contracts were traded every month on the SGX in 2008, compared to 1.44 million in 2007. According to market players, SGX is to equity traders what the non-deliverable forwards market is to currency traders.