Investors in dark as Singapore and India fight over futures
singapore — What started as a business disagreement between two Asian exchanges has become a source of growing concern for international investors.
A fight between Singapore Exchange Ltd and National Stock Exchange of India Ltd over derivatives contracts is threatening to end a popular way of hedging Indian shares. The battle, which went to court in Mumbai this week, has left traders scrambling to find new ways to manage their exposure to the $2.3 trillion market, one of Asia’s biggest.
The dispute broke into the open in February after NSE said it was axing licensing agreements with overseas bourses. India is trying to discourage offshore trading and promote a tax-free trading zone in Prime Minister Narendra Modi’s home state, part of a broader effort by Asian nations to keep control of capital while further integrating into the global financial system. That’s not a combination that appeals to money managers.
“The moves do not help and it sends a wrong signal to the investing community,” said Salman Ahmed, London-based chief investment strategist at Lombard Odier Investment Managers. “You want to open your capital account incrementally, and for foreigners to invest in your very young population. This is a very bad signal to give.”
NSE and SGX first clashed in January, when the Indian bourse asked its counterpart to delay plans to introduce single-stock futures that would track some of the subcontinent’s largest companies. SGX ignored the request, and a week later India’s three national exchanges said they’d cancel their offshore pacts, which meant that Singapore could no longer offer Nifty 50 Index futures.
“The battle is more about control and volumes,” said Vik Mehrotra, chief executive officer of Venus Capital Management in Boston, who has been investing in India since 1994. “This is a self-preservation move by NSE. This is an unnecessary fight.”
Officials from NSE and SGX declined to comment.
Court fight
NSE is suing to prevent SGX from starting contracts that would replace the Nifty 50 derivatives. Singapore’s exchange has readied the SGX India Futures for launch on June 4, and has said the contracts will use publicly available data. NSE argued that they are “unlicensed products” and “identical” to the Nifty-branded futures. The Indian exchange had sought the urgent hearing without giving notice to SGX, a sign of how much the 18-year partnership between the companies has deteriorated.
The next hearing in the case is due on Saturday; in the meantime the Bombay High Court has issued an injunction against SGX to prevent it from launching the new products.
SGX’s shares fell 2.1 per cent on Tuesday, when the company revealed the lawsuit in Mumbai, its biggest drop since April 4. The stock closed Friday down 3.4 per cent since Monday’s open, its worst week since mid-February, according to data compiled by Bloomberg.
If the NSE wins, and assuming SGX abides by a ruling from India, investors will be left without an easy offshore way to hedge Indian stocks. Some global asset managers are saying they may pull out of the country, said Eugenie Shen, managing director and head of the asset management group at the Asia Securities Industry & Financial Markets Association. Others may lower their exposure, she said.
“Many still prefer to access India through offshore products or offshore means because the general view is that it is difficult and costly for foreigners to invest onshore,” Shen said.