NSE-SGX's Gift City foray unlikely soon

Delay of 12-18 months expected; stakeholders trying to reach consensus

The potential collaboration between the National Stock Exchange (NSE) and the Singapore Stock Exchange (SGX) for routing trades through Gift City in Gujarat is unlikely to take off anytime soon.  

People in the know said the proposed Gift City-connect between the two exchanges could take anywhere between 12 and 18 months to fructify. Both NSE and SGX submitted their initial proposal to their respective regulators — Securities and Exchange Board of India (Sebi) and Monetary Authority of India (MAS) — earlier this month. NSE and SGX are eyeing an arrangement on the lines of the Shanghai-Hong Kong Stock Connect, said the people.

The Connect allows Hong Kong residents to trade in Mainland China shares and Mainland residents to deal in popular shares listed on the Hong Kong bourse.

All the parties involved need to be on board with regards to various aspects such as risk management, taxation, and settlement of trades.

“It could take up to 12-18 months to work out a solution that will be acceptable to all the stakeholders,” said a person in the know. The initial proposal submitted to the regulators highlights the broad structure that SGX and NSE are looking at.

“There will be too much back and forth. Multiple options are being deliberated. Considering the complexity of the structure, the whole process would require a proper strategy to make it viable for both exchanges,” said the person cited above. 

Initially, both exchanges were looking to launch trading in Nifty products at the international financial services centre (IFSC) by December. However, all parties involved couldn’t be on the same page.

“Both countries are taking a cautious approach to product specifications and operational issues. The objective is to enable international clients to deal in Indian derivatives so that it could derive desired benefits,” said a regulatory source.

A query sent to Sebi, NSE and SGX did not elicit any response.

NSE and SGX had restarted talks over Gift City following a meeting between the regulators of India and Singapore.

On July 25, Sebi and MAS had held discussions on various issues of cooperation, including the amicable resolution of the NSE and SGX issue, Sebi had said in a statement.

“Both regulators agreed that the collaboration between the two authorities would be further strengthened, so as to derive benefits for capital markets of the countries. Both regulators also agreed that NSE and SGX would carry out necessary discussions to come up with a solution acceptable to both parties,” the statement added.

NSE and SGX have been at loggerheads since early this year, soon after the Indian stock exchanges announced that they would stop licensing indices to their foreign counterparts from August.

To counter this, SGX decided to launch successor products for Indian equity derivatives on June 4. The move was challenged by the NSE under the Arbitration Act, seeking injunction against the launch of the new derivative contract.  

Later, both exchanges deferred the on-going arbitration proceedings pending outcome of their talks, and resumed discussion on a potential collaboration at the Gift City. 
 

The Roadblock

• NSE, SGX submitted proposals to Sebi, MAS earlier this month
• Bourses eye arrangement on the lines of Shanghai-Hong Kong Stock Connect
• Connect allows Hong Kong residents to trade in Chinese shares and vice-versa
• Sebi, MAS have held discussions on various issues, including an amicable resolution of the NSE-SGX conflict
• Exchanges have deferred arbitration proceedings pending outcome of their talks; resumed discussion on Gift City collaboration