In today’s Finshots, we explain the new deal between the National Stock Exchange (NSE) and the Singapore Stock Exchange (SGX).

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The Story

For 23 years, Indian investors had a nifty trick up their sleeves. The stock market bell would ring at 9:00 am every weekday, but investors already had an inkling as to whether the Indian market would open in the red or in the green. They could gauge the sentiment beforehand.

And the trick was to first look at Singapore!


Okay, let us explain by rewinding a bit.

See, way back in 2000, the NSE was a newbie stock exchange in India trying to make its mark. It had only been around for four years and it wanted to innovate. It had the popular Nifty 50 index made up of 50 of India’s largest companies. So it decided to launch a derivative of this index. This new product would be a Nifty futures contract. Just think of this as a bet you could take on whether the Nifty 50 will go up or down in the future. You pay a small fee and you get the privilege to lock in the current price. If the bet goes in your favour, you close the contract and pocket a nice profit.

But NSE wanted to do more with this product. It wanted to make it easy for foreign investors to participate in the India story too. And it had a brainwave. It decided to immediately ink an agreement with folks in Singapore. NSE would supply data regarding Nifty’s prices to the Singapore stock exchange (SGX). And the SGX could create a similar index and offer a futures contract that would trade in Singapore — it would be called the SGX Nifty. And investors from outside of India could dabble in this.

It was a smart ploy. After all, Singapore was a major financial hub. And giving foreign investors the option to get exposure to India would make us quite popular. Especially since the investors wouldn’t have to deal in rupees. They could trade in their favourite dollars. As a bonus, the investors would get the keep all their profits too since Singapore didn’t have any capital gains tax. The SGX Nifty would be a chance to elevate our status in the investing world.

Needless to say, the SGX Nifty future contracts became hugely popular. And over time billions of dollars worth of these Nifty-linked futures began to change hands in Singapore itself.

But how does all this help with gauging sentiment, you ask?

Well, it’s simply because of the time difference between India and Singapore. It would still be 6:30 am in India when the SGX Nifty started trading for the day. So by the time India began trading, we’d kind of know what to expect. And that’s how Singapore became a leading indicator for the Indian stock market sentiment.

But all this changed as of 3 July. The SGX Nifty is now dead and buried.

Hold on…what on earth is going on now?

Well, in 2018, NSE got into a spat with SGX. It wasn’t happy with the latter’s popularity. After all, the SGX Nifty saw 5 times more trading activity than its original counterpart. The NSE felt that this popularity was sucking money away from India. That foreign investors were putting their dollars to work in Singapore. And that was affecting the growth of the Indian futures market. Also, SGX wanted to introduce futures contracts for individual stocks. Not just the Nifty 50 index.

That annoyed the NSE. So it annulled the deal. It said it wouldn’t supply data to SGX anymore. The matter went to the courts. The relationship between them became strained and things weren’t looking good. Investors were worried about what would happen.

But during this little tiff, there was a ray of light elsewhere.

India was building a new epicenter for finance — the Gujarat International Finance Tec-City. Or GIFT City in short. A nearly 900-acre sprawling campus that would lie between Gandhinagar and Ahmedabad. Think of it as a free trade zone where the typical Indian rules don’t apply. We would offer a 10-year tax holiday and stuff like that. It was India’s attempt to attract foreign businesses.

And to attract financial services companies, the government even created a new financial authority International Financial Service Centre Authority (IFSC Authority). Think of the IFSCA as a unified regulator that would take on the role of SEBI, RBI, IRDAI, and PFRDA. It would be the one-stop shop for all policy-making in GIFT City.

That’s when NSE had an idea. It told SGX, “Look, we want trading to happen in India. We want the dollars coming in. Why don’t you collaborate with us here? We’ll set up shop in GIFT City and we’ll provide a linkage for foreign investors to trade the Nifty index. In dollars itself.”

Now SGX could’ve said no and kept trying to fight back. But the SGX Nifty was a crucial part of its offering. India was a big market that foreign investors wanted to play in. Heck, when the spat first happened in 2018, SGX’s stock fell by nearly 10%.

So, the exchanges struck a deal.

On 3 July, $7.5 billion worth of the SGX Nifty’s contracts migrated across the sea to India. To Gujarat. It would undergo a small name change too — GIFT Nifty. NSE would handle the trades and SGX would deal with verifying the trades and making sure everything is in order. And both exchanges would continue to make money.

So yeah, the SGX Nifty might be dead and buried. But we do have something new in its place. And that means investors won’t have to look to Singapore to gauge sentiment now. They’ll just have to look to Gujarat. Because even here, the morning bell will ring at 6:30 am.

Until then…

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