Indian Exchanges Ban Data, Index Use for Overseas Derivatives

On February 9, the National Stock Exchange of India, the Bombay Stock Exchange, and the Metropolitan Stock Exchange of India jointly announced that they would stop providing their data for the creation or settlement of derivative products traded on exchanges outside India, to combat migration of liquidity away from India. The exchanges say they have observed trading in derivatives and indexes based on Indian securities reach “large proportions in some of the foreign jurisdictions… which is not in the best interest of Indian markets.”

The exchanges say they will no longer license data for the creation or settlement of overseas derivatives—and will terminate existing licenses “with immediate effect” (subject to notice periods)—and that no exchange or trading platform outside India that licenses the data may use it to create derivatives.

The SGX Singapore Exchange, which licenses data from the National Stock Exchange of India to create its Nifty series of index derivative contracts, reassured market participants that its India suite of products would continue to operate as usual, noting that SGX’s licensing contract with NSE supports the trading of Nifty products until at least August 2018. “SGX and NSE are long-term partners and have collaborated since 2000 to develop and internationalize India’s capital markets,” SGX officials say.

SGX also says it is already making plans to “develop and launch new India-access risk management solutions to allow global participants in SGX India equity index family of derivative products, to execute their investment activities with continuity,” and will also work with NSE’s International Exchange to develop products that could be traded locally in India on the International Financial Services Center within the Gujarat International Finance Tec-City (GIFT) finance hub.

However, while SGX is making preparations to ensure continuity of products for investors, others believe the move will create disruption for international markets. US-based derivatives industry body FIA said in a statement that the Indian exchanges’ move raises “serious concerns” for its membership, adding that it “appears likely to disrupt trading on numerous exchanges around the world and alarm international investors.” FIA also said it plans to talk with the exchanges and its membership to “fully understand the consequences for derivatives markets and their customers.”

The three exchanges said they will continue to license data to other markets within India, and will publish end-of-day and settlement prices on their websites and via media organizations, two hours after market close.