A new era for India’s financial landscape (GS Paper 3, Economy)
Context:
- Recently, the Indian securities market made a significant leap in the global capital market ecosystem.
- The popular Singapore Stock Exchange (SGX) index, SGX Nifty, now known as GIFT Nifty, has been launched on the NSE International Exchange (NSE IX) at the International Financial Services Centre in GIFT City.
- This launch signifies a complete shift of Nifty derivatives liquidity from SGX to NSE IX.
Scope:
- India has achieved a remarkable milestone by establishing cross-border capital market collaboration with Singapore in the derivatives segment.
- Under this groundbreaking initiative, trading and matching activities for GIFT Nifty will be conducted in India, while the crucial processes of clearing and settlement will take place in Singapore.
- This collaboration not only strengthens the global derivatives market but also fosters international cooperation.
NSE IX – SGX GIFT Connect:
- The NSE IX – SGX GIFT Connect is a joint initiative by the NSE India group and Singapore Exchange, supported by the IFSC Authority, Monetary Authority of Singapore, and the Government of India and Singapore. This connect symbolizes innovation, opportunity, and unparalleled access between India and the world.
- The Connect represents the “on-shoring” of offshore international derivatives market transactions into India.
- GIFT IFSC, as a dollar-denominated market, provides eligible domestic participants with a “home away from home” experience. This shift is a watershed moment in India’s history, as it marks the first time India will have an international contract that was previously exported out of the country.
Significance:
- GIFT Nifty will also serve as a price-setter for the Indian market. Trading sessions will commence at 6:30 AM IST and will be split into two sessions, closing at 2:45 AM IST, overlapping with trading hours in Asia, Europe, and the US.
- This significant overlap will considerably eliminate time-zone pricing disparities, providing realistic price signals to Nifty derivatives trading on the NSE in India. Previously, SGX Nifty trading hours on the Singapore Exchange were from 6:30 AM IST to 10:30 PM IST.
- Participants will benefit from a larger liquidity pool for Nifty products on NSE IX. They will also have the advantage of exploring an alternative way to access USD Nifty derivatives via SGX.
- This allows them to remain connected to the best of both worlds by trading USD-denominated Nifty contracts at NSE IX and clearing and settling at SGX-DC, an internationally recognized Clearing House with best-in-class regulation.
- This development will also promote innovative technological integration into the capital market, creating a near win-win situation for eligible market participants and the Indian capital markets.
Background:
- Over the years, SGX Nifty has experienced a remarkable compound annual growth rate (CAGR) of 36% in the last 16 years, reflecting its popularity among market participants, including institutional investors, traders, and arbitrageurs who seek to take advantage of price discrepancies between SGX Nifty and the underlying Nifty 50 Index.
- The termination of the licensing agreement between NSE and SGX for trading Nifty derivatives on the SGX platform in February 2018 prompted the rejuvenation of IFSC GIFT’s importance in the global financial services landscape.
- In order to create a larger liquidity pool for Nifty products in GIFT City, NSE entered into an agreement with SGX to operationalize the NSE IX – SGX Connect.
Way Forward:
- This connect is a key development for integrating the GIFT City ecosystem with international financial markets.
- It will attract further investment from international participants, create new job opportunities, and strengthen the capital market ecosystem in GIFT City, resulting in broad-based development across asset classes and capital raising activities.
