Monday, Oct 03, 2022
Outlook Money

Who Can Invest In SGX’s Nifty Futures When It’s Launched? How Is It Different From Nifty Futures?

The launch of Singapore’s SGX Nifty and commodity exchange, India International Bullion Exchange (IIBX) has been postponed due to inclement weather. But when it begins operation soon, who all will be able to invest and trade in it? Read here for details

Who Can Invest In SGX’s Nifty Futures When It’s Launched? How Is It Different From Nifty Futures?
Who Can Invest In SGX’s Nifty Futures When It’s Launched? How Is It Different From Nifty Futures?

The launch of the futures contracts of Nifty on the Singapore Exchange (SGX)—called Nifty SGX—and that of commodity exchange India International Bullion Exchange (IIBX) has been postponed. Both the launches were slated at the same event at the Gujarat International Finance Technology (GIFT) city in Gandhinagar today by Prime Minister Narendra Modi.

“Members may note that the operationalisation of the NSEIFSC-SGX Connect is deferred. The revised date for operationalisation of the Connect shall be informed shortly through a separate circular,” NSE IFSC said in a circular. A call to the support guide extension telephone line of IIBX also elicited the same response.

According to people in the know of the matter, the launch was postponed due to incessant and unprecedented rains in Ahmedabad over the last few days. Moreover, the Indian Meteorological Department has forecast heavy rainfall in the next few days.

Here is all you need to know about the new SGX Nifty product and the IIBX index.

What Is SGX Nifty?

Singapore Exchange (SGX) Nifty is a derivative investment product based on India’s National Stock Exchange’s (NSE’s) Nifty 50. Indian citizens are not permitted to trade in SGX Nifty, and only foreign portfolio investors and others are allowed. NRI Indians can trade in SGX Nifty, but their respective country’s derivative trading laws will have to be checked first whether it allows this or not.

Tanvi Kanchan, Head of Corporate Strategy, Anand Rathi Shares and Stock Brokers, said that SGX Nifty was popular among foreign investors who wanted to trade in an Indian equity product but did not desire to open an account over here to do so. "If they wanted to place a bet in India they would trade on SGX Nifty. So by launching dollar denominated nifty product this will allow the foreign inflows in Gandhinagar IFSC GIFT city," he added.

In 2018, NSE had said that they would terminate this arrangement in 2019, following which SGX sued them. It was only in 2020 that they settled the case by going into arbitration, and now in 2022, they are set to launch SGX Nifty in Gandhinagar IFSC, Gujarat, India, and not in Singapore. 

Rohit Beri, CIO, True Beacon, an Alternative Investment Fund (AIF) operating in Gandhinagar IFSC explained that “NSE saw trading activity migrating from its exchange (India) to offshore Singapore Exchange (SGX), and hence to curb that migration, NSE decided to stop this arrangement.”

What Is The Difference Between Singapore SGX Nifty And India Nifty 50 Futures?

Although both are derivative contracts, the Singapore SGX Nifty 50 is a futures Nifty 50 contract and is dollar denominated. The trade timings for both these contracts are also different. The Singapore SGX Nifty trades in two schedules T and T+ and remains open for trading for about 16 hours. SGX Nifty opens at 6.30 AM and closes at 11.30 PM (India time), whereas the Indian Nifty on NSE starts trading from 9.15 am till 3.30pm. 

Kanchan said that SGX Nifty will repotedly trade simultaneously at the Gandhinagar IFSC GIFT city and Singapore initially but later the trading in Singapore will be stopped. "The market Data Connect will allow SGX members to read the price data of Nifty derivatives products at NSE IFSC in real-time. Further all the orders will be processed through the Tata Consultancy Services (TCS) BaanS Terminal. The clearing and settlement module offered by TCS will interact with the clearing arms of NSE IFSC and SGX for position and limits management while performing all regulatory compliance functions," he added.

Abhishek Dev, co-founder and CEO, Epsilon Money, said in a press statement that Nifty 50 trade volume in SIngapore is much higher than in India. So, with the negotiated new deal between NSE India and Singapore SGX, the SGX Nifty trade will now start moving to the Gujarat International Finance Technology (GIFT) IFSC City in Gandhinagar, India.

“With the negotiated deal between NSE and SGX, this is now moving to GIFT City in India, the emerging Global Financial Hub within Indian shores with world class financial infrastructure, regulations, and more efficient tax framework to attract global investors,” he added.

Significance of SGX Nifty?

SGX Nifty is an extremely important derivative product for foreign investors who wish to invest in India, but need a favourable tax scale and currency.

Trading Currency: Foreign investors preferred to trade in US dollar or Singapore dollar compared to Indian rupee. SGX Nifty solved this problem for them. Beri said that foreign investors preferred to trade in SGX because the “taxation laws were efficient there”, and “it reduced their currency and jurisdiction risk.”

Tracking: SGX Nifty holds a high significance among Indian Nifty 50 traders. As it opens before Indian Nifty, it sets the course for the opening direction of trade in Nifty 50. This is why in the pre-opening market copies, the SGX Nifty levels are mentioned. 

Hedging: SGX Nifty opens before Indian Nifty 50, and trades well after Indian Nifty 50 trade closes. Hence, foreign investors can continue trading in SGX Nifty and hedge their positions and factors for geo-political and other events which occur after the Indian market closes.

Vijay Bhambwani, head of research, behavioural technical analysis at Equitymaster, an Indian equity market research company, said in a statement that the listing of SGX Nifty in Gandhinagar GIFT IFSC, Gujarat will serve multiple purposes. 

“Currently, the overseas investors (FIIs) tend to hedge their exposure in India by investing in Singapore SGX Nifty. Post listing of the SGX Nifty in India, these trades will be initiated in India,” he added.

The SGX Nifty had indeed addressed all these problems, but in doing so, it also took away trading activity from NSE to Singapore SGX. Now with the two exchanges linking up a new pact and forming NSEIFSC-SGX Connect venture, the SGX Nifty trade will happen in Gandhinagar, Gujarat IFSC, and a host of tax benefits and operational time benefits will be applicable.