Decoding the battle between NSE and SGX

Mumbai: A 16-year-old mutually beneficial relationship between the National Stock Exchange (NSE) and the Singapore Exchange Ltd (SGX) has soured to a point of no return. Here are the implications for the exchanges and its investors.

Why are the two exchanges fighting?

For some time now, NSE has been trying to assert its right over its flagship product Nifty 50. This puts it in conflict with Singapore Exchange’s SGX Nifty 50 futures, a partnership with NSE. The battle began on 9 February, when Indian exchanges decided to bar overseas bourses from trading in Nifty derivatives. On 11 April, SGX announced a new product which works just like the Nifty, bypassing the Indian exchange. NSE tried to stall the launch slated for 4 June but negotiations failed, leading to NSE suing SGX.

What’s at stake for NSE?

The relationship between the two exchanges, where SGX earned revenues and NSE got recognition among foreign investors, is in peril.If NSE wins the case, it will be able to establish rights over Nifty 50 and other indexes. It will still need to build liquidity in its own contracts, which earlier used to be divided between SGX Nifty and Nifty. Even if it wins, NSE may find it difficult to move liquidity from SGX to GIFT, India’s international trade centre. If NSE loses the case, then it may lose its edge in derivatives trading.

What about SGX?

If SGX loses, it will take a revenue hit as the exchange has a 52% market share in Nifty futures trading. It will also lose some clients who traded Nifty on its platform.

How will this affect investors?

Many hedge funds which did not want to register directly with India as foreign portfolio investors used to trade in SGX-Nifty for India exposure. With SGX’s India-focused products facing legal challenges, they may look to other emerging marketing economies. If India continues to be attractive, the investors may have to bear additional expenses and compliance costs for direct registration or move to GIFT.

What will it mean for India and exchanges around the world?

Index provider MSCI may reduce India’s weightage in the emerging market economy index. MSCI’s CEO Henry Fernandez told Bloomberg Television that his firm was “concerned, quite a lot” about the dispute between NSE and SGX. The outcome of the legal case may also establish new international jurisprudence on copyright issues surrounding pricing data.livemint