On Friday, PM Narendra Modi inaugurated NSE IFSC-SGX Connect in Gandhinagar. Investors in India and around the world can now seamlessly trade NSE IFSC listed Nifty contracts in compliance with global risk management and clearing standards. They will have real-time access to NSE IFSC market data.

How did Nifty Derivatives Catch on in Singapore?

NSE has entered into licensing agreements with Singapore Exchange (SGX) for the Nifty 50, Nifty Bank and three other equity indices to trade derivatives of these indices on SGX. Over time, these products, especially the Nifty 50, have become popular among foreign funds that use it to bet on Indian stocks. So much so that, as portfolios flooded into the Indian market, trading volumes on the SGX Nifty contract also increased. Overseas investors are believed to be switching to the Indian market from Singapore, which started trading two and a half hours ahead of the NSE.

What was the Controversy between NSE and SGX?

The Indian Exchange terminated its licensing agreement to trade derivatives on SGX on 12 February 2018. Subsequently, SGX issued a notice on 11 April 2018 to launch three new contracts called SGX India Futures, SGX Options India Futures and SGX India Bank Futures, which are NSE derivatives contracts copy. To prevent such releases, NSE filed a petition with the Bombay High Court on 21 May 2018 against SGX seeking emergency interim relief for the marketing, promotion and release of the three new contracts. The High Court issued an interim injunction against listing on SGX. On May 29, 2018, the court passed a consent order and referred the matter to the sole arbitrator, Justice SJ Vazifdar, for arbitration.

How did the Controversy End?

Although the matter has been referred to arbitration, NSE and SGX are still discussing the proposed collaboration of Gujarat NSE IFSC in Gujarat International Fintech City (GIFT City). On September 22, 2020, NSE and SGX signed a formal cooperation agreement to integrate key terms for the operation of NSE IFSC-SGX Connect. Accordingly, an application has been made to the sole arbitrator to terminate the arbitral proceedings under Section 29(a) of the Arbitration and Conciliation Act 1996. After Connect goes live, the derivatives trading license agreement with SGX will be based on SGX.

What is the NSE IFSC-SGX Connect?

On 28 March 2022, NSE IFSC entered into operating agreements with SGX India Connect IFSC, Singapore Exchange Derivatives Clearing and NSE IFSC CC to operate NSE IFSC-SGX Connect subject to all necessary regulatory approvals. Under this link, all Nifty derivatives orders placed by SGX members will be sent to and matched on the NSE-IFSC order matching and trading platform. The above connections will deepen the liquidity of the GIFT-IFSC derivatives market, attract more international participants, and have a positive impact on the GIFT-IFSC financial ecosystem. Broker-dealers from India and international jurisdictions are expected to heavily engage in derivatives trading through Connect.

How will it Work?

Trading will resume from 8:00 am to 5:00 pm IST. After a two-minute pause, trading will begin at 2:45 am IST. Orders for Nifty-based derivatives contracts will be sent from SGX India Connect IFSC to NSE IFSC for trading and execution, and then cleared and settled by NSE IFSC Clearing Corporation, with SGX-Derivatives Clearing as the central counterparty. Connect will use TCS’ flagship solution, TCS BaNCs, to facilitate Nifty transactions between India and Singapore. Connect will offer futures and options on Nifty 50, Nifty Bank, Nifty IT and Nifty Financial Services indices.

What are NLTs?

In May, NSE and SGX launched SGX Group’s Negotiable Block Trading (NLT) at GIFT City. NLT is usually a pre-negotiated block transaction between buyers and sellers. It is essentially an OTC facility that allows trading participants or their clients to place and trade orders outside the trading system.