Chicago Mercantile, NSE in tie-up for cross listing arrangement for index futures.
In a major development that will allow Indian investors access to the American market, the National Stock Exchange (NSE) has decided to begin trading in futures contracts of S&P 500 and Dow Jones Industrial Average (DJIA), two of the world’s most influential market indices.
This will be the first time the two indices will be traded in markets outside the US.
At the same time, Nifty, NSE’s benchmark index comprising India’s 50 top blue-chip stocks, will be traded on the Chicago Mercantile Exchange (CME). The S&P 500 and Dow indices are licensed to the CME.
The listing and trading arrangement for these indices, which are subject to regulatory approvals in India and the US, was announced by the National Stock Exchange and CME in a joint statement this evening.
The S&P 500, which has Exxon Mobil, Microsoft and Apple as the most weighted stock in the index, is regarded as the single gauge of large-cap US equities since 1957, capturing 75 per cent of US equities by market capitalisation. The Dow is among the most closely-watched benchmark indices tracking the performance of the US industrial sector.
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Besides the cross-listing and licensing agreements, the two bourses have also signed an agreement on other areas of potential co-operation such as the development and distribution of financial products and services.
NSE’s affiliate, India Index Services and Products Ltd (IISL), has granted an exclusive licence for Americas and Europe to the CME Group for trading in the Nifty 50.
Samir Arora, fund manager at Singapore based Helios Capital Management said: “It is a big positive move for Indian markets and investors. The domestic fund houses, even retail investors, will be able to hedge their risk by taking counter-positions in US indices, since news flow from the US had a major influence on capital markets around the world.”
The Nifty index is currently traded only in Singapore outside India and trading has recorded phenomenal growth of over 700 per cent on the Singapore Stock Exchange in the past couple of years. Hedge funds are known to take huge positions on the SGX.
Ravi Narain, managing director and chief executive officer of NSE, said this association with the CME Group would make the Nifty 50, and, over time, potentially other products across various India-related asset classes, available to a much larger community of traders and investors. At the same time, investors in India would have access to new exchange traded products that reflect some of the world’s most widely traded equity indexes," he said.
Craig Donohue, Chief Executive Officer, CME Group, said as the world’s 12th largest and one of the most rapidly growing economies, India was an important part of CME’s efforts to develop strategic partners in key growth markets.
NSE also announced an agreement to explore the listing and trading of more India-linked products on the Singapore Exchange Ltd, which already has a licence to trade in the Nifty 50.
Separately, NSE has also tried to strengthen its product offering on the SGX. Under an agreement signed between NSE and SGX today, both exchanges will explore future collaboration in the expansion, development and promotion of India-linked products and services to be listed on SGX.
Subject to regulatory approval, these products may include equity products and other asset classes. The two exchanges also will look into a bilateral securities trading link to enable investors in one country to seamlessly trade on the other country’s exchange.
NSE and SGX have has a successful partnership since 2000 with the launch of the SGX S&P CNX Nifty Futures, which had trading volume of 7.1 million contracts last year.
| TRADING PLACES |
| What does it mean for domestic investors? Indian investors can bet on the US market by taking a position on the S&P 500 or the Dow Jones Industrial Average futures. |
| What are these indices? S&P 500 includes 500 large-cap American companies covering about 75% of the US equity market by capitalisation. DJIA is the second-oldest US market index. |
| How can they invest? A simple phone call to a broker will suffice. Trading in S&P 500 or DJIA would be just like trading in the Nifty futures since these products would be rupee-denominated and cash-settled. RBI guidelines on overseas investments by individuals will not come into play. |
| What are the competing products? Exchange-traded funds (ETFs) are the closest products through which investors can bet on overseas markets. Most recently, Hang Seng ETF opened for subscription on NSE. There are a few mutual fund schemes that invest in overseas markets. |
| When will trading start? Regulatory approvals are awaited |