Shift of SGX Nifty to NSE-IFSC exchange to be a watershed moment in history of India: V Balasubramaniam

“Singapore exchange alone has an open interest of close to about 10 billion US dollars. And this 10 billion US dollars, which is almost five times of the exposure on the Indian Nifty Futures, is now going to completely switch to the NSE-IFSC exchange or the NSE International Exchange at GIFT City,” says V Balasubramaniam, MD & CEO, GIFT IFSC.

Your efforts of such a long time actually is being materialised. How does it feel now? And talk to us about the importance of this.
I would like to inform you that this is actually going to be a very watershed moment in the history of India because for the first time we are actually going to get an international contract which we have exported out of India to move back to India. In some sense we call it on-shoring the offshore. That is exactly what we are going to achieve. So as you know, Nifty is the benchmark equity index for India. Roughly India’s market capitalisation is about 3.5 trillion dollars. And almost 20 to 25% of this exposure is with foreign investors as we call as FPIs. Now these investors, normally whenever they want to hedge in terms of the market movement or the volatility on the equity market, they actually express it through basically trading through the Nifty futures contract.

And most of this contract is now executed more than on-shore in the NSE domestic exchange.

It is actually traded in the Singapore exchange, which is the SGX. And to give you a rough idea, for example in Nifty, on the domestic market we have an open interest of close to about 1.5 to 2 billion dollars in terms of dollar terms.
On a similar comparable figure, Singapore exchange alone has an open interest of close to about 10 billion US dollars. And this 10 billion US dollars, which is almost five times of the exposure on the Indian Nifty Futures, is now going to completely switch to the NSE-IFSC exchange or the NSE International Exchange at GIFT City. And this is going to happen from July 3, 2023, which is just about 45 days from today. And that is obviously, that is why I said it is going to be a very big thing. And effectively all the international investors are using this contract to actually hedge on the Indian equity market, the benchmark. This is going to move over here.

Such a large opportunity, the underlying market is in India, the main instrument on which the trades are being set was in India, but just because there was an offshore instrument also available on this underlying asset in Singapore, we were losing out as a country, our exchanges were losing out such a big opportunity for such a long time, so all of that is getting reversed now.
Absolutely. In fact, to just give you an idea, GIFT City as an international financial centre was actually commissioned in 2015, where RBI actually issued a regulation wherein they removed the FEMA restrictions from this particular exclusive zone. And after 2015, 2017 is when both NSE and BSE respectively set up their international exchange operations here. And after that in 2020, one significant thing happened a new regulator was created here, which is the International Financial Services Centre’s Authority or the IFSC Authority, which has taken over the powers from RBI, SEBI, IRDA as well as PFRDA.

And effectively, we have got a unified regulator. And the bigger objective was basically how we can actually become a price setter. When actually Prime Minister inaugurated the international exchange in 2017, he actually set out two statements for us; one is he said the international exchanges here should actually become a price setter in at least few of the products over the next decade. And I am happy to say that the Indian equity markets every day were being led by the international prices because we all wake up in the morning, because Singapore Nifty opens before us and they actually start setting up the price market and the tone for our Indian market. Now, that is something which we are basically bringing onshore. And that is why I said on-shoring the offshore is going to happen. And this is going to be one of the first big kinds of things which we are going to achieve. And as we go forward with that, more and more things will happen. In fact, this year, in February, our honourable finance minister has already announced that offshore derivative instruments will also be allowed to participants in the GIFT City. If that starts happening, I think apart from Nifty, we will also start moving into other contracts which is Bank Nifty, Financial Nifty and even single stock futures which are all traded out here. All of these will over a period of time become liquid in the NSE International Exchange.

This is such a big opportunity you are talking about because any FII anywhere in the world from here on wants to trade India in any manner either individual stock or specific futures kind of indices which are available beyond Nifty as well so that window is also getting opened. So the message is actually going out to the entire FII community across the world, is not it?
In fact, this is actually a very interesting arrangement. Singapore exchange and we have actually partnered and we have created this connect which is a win-win contract for both sides. So effectively today all these foreign investors will come through the SGX connect because what we have done is we have got SGX to set up a special purpose vehicle company called the SGX IFSC Connect India Limited which is basically a trading member of the NSE International Exchange. And effectively all these foreign investors will be able to transact through them and effectively all the matching will now move over to the NSE International Exchange.

And foreign investors obviously without requiring too much are able to come and basically we have actually in some sense on-shored to the contract and effectively they will be able to participate in this.

And going forward both the onshore Indian domestic market product as well as the dollar based product which we have here, both will be available. And thirdly, we are going to operate the market here for 21 hours.

So effectively we are going to keep the same time and anyone from Japan which opens first in terms of the markets to all the way right up to California and US which is when the markets close, all of them, all those time zones will be serviced through the NSE International Exchange.