The two-decades old stigma that the foreign portfolio investors (FPIs) decided India’s market direction in the off-shore tax haven is likely to be washed away as the trading of the country’s most popular share index Nifty will be discontinued on the Singapore Stock Exchange (SGX) from July and instead will be launched at the Gujarat International Finance-Tec (GIFT) City platform known as NSE-IFSC.
SGX in a late-night release on Monday said: “a full-fledged liquidity switch will be made effective from July 3, 2023, from SGX to the NSE’s IFSC-SGX Connect. Currently, derivatives (both futures and options) on Nifty and Bank Nifty are traded on the Singapore exchange.
Nifty trading in Singapore was a heartburn for India’s incumbent government since FPIs trading in the index remained outside the purview of the domestic authorities and on several occasions the open interest of SGX pipped that of NSE’s. Nothing will change overnight but SGX, like most of India’s regional stock exchanges, will act as a broker of NSE-IFSC, sources in the know said.
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To begin with, the FPIs will have an option to remain in Singapore and trade Nifty on NSE-IFSC via SGX but for those who are willing to come to India, there is an option to shift their operations completely to the GIFT City in Gujarat — as a lure, there is an enticing tax holiday and a promise of little or no scrutiny.
Tax benefits
But according to the experts, FPIs will still prefer to remain in Singapore for now as SGX offers them the comfort of an omnibus structure, wherein nobody can know the original beneficiary of the trade.
A nearly similar omnibus structure has been accepted by the IFSC regulator for the purpose of forcing SGX to de-list Nifty on its Singapore. As per the current structure, the SGX will record all transactons on the NSE-IFSC platform, the sources said. Simply put, SGX will be the single largest client of NSE-IFSC through which all the Singapore based FPIs can trade.
“Luxury of FPIs which traded in Singapore will not go away even as Nifty will be delisted there and launched on NSE-IFSC platform. But P-Notes and Nifty’s return to India surely mark a new beginning and give hope that in future FPIs can be compelled to trade directly on GIFT platform rather than using SGX as a vehicle,” a regulatory official said.