One of the ways for most market participants to gauge market sentiment for the upcoming trading session is to look at the trend of SGX Nifty, traded on the Singapore Stock Exchange. Starting July 3, 2023, all the US dollar denominated Nifty derivatives would be solely traded on the NSE IFSC platform situated in the GIFT City instead of Singapore Stock Exchange (SGX).
What is SGX Nifty?
SGX stands for Singapore Stock Exchange and SGX Nifty is the derivative contract of Nifty 50 traded on the Singapore Stock Exchange, giving foreign investors exposure to the Indian derivatives market. It has been traded on the Singapore Stock Exchange since September 2000.
Who trades in SGX Nifty currently?
Foreign investors who want to have exposure to Indian markets without having to register with the Indian regulators and exchanges.
What advantages does SGX provide to these Investors?
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Longer trading hours: While our onshore markets operate only for 6:30 hours (between 9 AM to 3:30 PM IST), SGX Nifty remains open for 16 hours (between 6:30 AM to 11:30 PM). This allows the market participants the extra time to enter or exit positions based on latest market developments.
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Provides access to Indian markets for those Investors who want to transact in Dollar terms.
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Lower taxation with easy registration and operation offered by Singapore also attracts traders to prefer trading in SGX.
What were the issues with SGX?
As the volumes of SGX surged almost matching that of our markets and Indian participants started using SGX prices as a reference for our markets, representatives of Indian markets rightly argued that the trades should happen from the Indian shore and the benefits should be reaped here instead of Singapore.
What steps were taken to enable the change?
Creation of NSE IFSC Exchange
In 2017, NSE’s subsidiary, NSE IFSC (International Financial Service Centre) was established in GIFT City, Gandhinagar which was set up to help NRIs and foreign investors easily trade in Indian equities.
NSE IFSC operates as an international exchange in the IFSC to deal in equity index derivatives, commodity derivatives, interest rate derivatives, currency derivatives and depository receipts.
Creation of NSE IFSC-SGX Connect
In 2020, the SGX and NSE-IFSC created the SGX-NSE IFSC Connect, to bring together international and IFSC-based participants and create a unified order book at NSE-IFSC for USD-denominated Nifty.
After completing all the necessary changes, In April this year, SGX announced that all the open positions in SGX Nifty will be migrated to NSE IFSC Nifty after the end of the trading session on June 30, 2023.
Will it impact Indian traders?
It will be business as usual for Indian traders as trades in NSE and BSE are Rupee denominated while the trades settled in Gift City will be settled in dollars.
Impact on GIFT IFSC exchanges?
Once the traders start registering directly with stock brokers in GIFT IFSC and begin trading on the offshore exchanges trading volumes on GIFT IFSC will see a dramatic boost and eventually, lead to increase in capital flows to India.
Who can trade in SGX Nifty derivatives contract on NSE IFSC?
Any trading member Indian / foreign registered or non-registered with their domestic regulator by setting up its office through subsidiary/ branch model can start trading in the Gift Nifty products by taking membership of NSE International Exchange(NSE IX).
Participants like Non- Resident Indians (NRIs), Foreign Portfolio Investors (FPIs) and Eligible Foreign Investors (EFIs) can trade in these products by becoming a trading member of NSE IX.
Indian retail investors can only invest in NSE IX receipts (US Stocks) under the LRS route by becoming a trading member of NSE IX.
More reading:
https://static.nseifsc.com/s3fs-public/2023-05/FAQs%20on%20NSE%20IX_0.pdf
https://static.nseifsc.com/s3fc-public/content/circulars/NICCL_RMS_506.pdf
