BL Explainer. SGX Nifty will cease to exist after June: What traders need to know

We all know Nifty or Nifty50 is a famous index comprising the top 50 listed Indian companies that trade on the National Stock Exchange. SGX Nifty is a derivative contract traded on the Singapore Stock Exchange based on Nifty 50 Index. Within three months of NSE launching its trading on the Nifty futures on June 12, 2000, SGX offered the product in September 2000.

As we trade in Nifty 50 futures on the NSE, foreign investors trade on SGX Nifty at the Singapore stock exchange in dollar terms.

Of late, SGX Nifty has been attracting steady volume, due to strong interest from foreign portfolio investors. Singapore is a busy offshore financial centre with low taxation with easy registration and operation. It, therefore, attracts many overseas traders who want to avoid the hassle of registering with a strict market regulator such as the SEBI.

The longer trading hours are also an advantage. The SGX opens three hours before the Indian market at 6.30 am and closes at 11.30 pm IST, well after the Indian market closes. Besides, FPIs have also preferred SGX Nifty because they can hedge their Indian exposure with SGX Nifty futures. There is lower forex risk since the contracts are settled in dollars.

The problem is that the SGX’s nifty future volume has swelled over the years, almost equalling the domestic trading volume in these contracts. Centre felt these trades should happen from the Indian shore and the benefits should accrue here. So in October 2021, the Government launched NSE IFSC-SGX Data Connect enabling international members to access real-time trading data of Nifty derivatives contracts through SGX.

Taking a step further, in July last, SGX India Connect IFSC Pvt Ltd - a special purpose vehicle -was launched that admitted SGX as a trading member of NSE IFSC and clearing member of NSE IFSC Clearing Corporation Limited.

The SGX Nifty will cease to exist from June 30 as it will be delisted from SGX and traded as NSE IFSC Nifty from July 3 on the GIFT IFSC.

With all ends tied up, the Centre has nudged SGX to shift trading to Gift City. In a circular, SGX said a full-fledged liquidity switch will be made effective from July 3, 2023, from SGX to NSE IFSC-SGX Connect. Following the transition, all US dollar denominated Nifty derivatives contracts will be exclusively traded on NSE IFSC.

The current thinking is that the Centre may want to maintain status-quo as they want smooth migration. All the tax and operational benefits they currently enjoy will be available to the traders who wish to migrate. The Government is thinking long-term and wants FPIs to migrate lock, stock and barrel eventually.

There will be little impact for traders of SGX Nifty, as they can continue to operate from current locations and how they trade now, as the proposed set-up is mainly between SGX and IFSC. The market participants who do not wish to have their SGX Nifty migrated to NSE IFSC NIFTY by SGX should close out the open positions or perform the switch themselves via open market trading by June 30.

Trading volumes on GIFT IFSC will get a dramatic boost with this migration. Any trader who wants to trade Nifty contracts in dollar terms must execute them on the GIFT IFSC through the SGX connect from July 3. However, it may be some time before traders register directly with stock brokers in GIFT IFSC and begin trading on the offshore exchanges. Once that happens, volumes are likely to surge further.

No, as onshore exchanges such as NSE or BSE are in no way connected to this event, as the trading is happening in the rupee. It will be business as usual for traders and investors of NSE/BSE.