Indias largest stock exchange NSE has approached the top US derivatives regulator for approval of its futures and options contracts that will be traded at the Gujarat International Finance Tech (GIFT) City.
The move is aimed at getting American investors to trade in the contracts at the emerging financial centre after Indian exchanges jointly decided to scrap licences that allowed foreign bourses to offer their derivative contracts offshore in February.NSE IFSC Exchange, the exchanges subsidiary in GIFT City, has applied to the US Commodity Futures Trading Commission (CFTC) for approval.
NSE is expecting to get the nod in the next 20 days, said a top official.
BSEs India INX is in the process of applying to CFTC for similar approval.Permission by CFTC is mandatory for US funds to trade in derivative contracts in GIFT City.
Overseas investment in Indias stock market is dominated by that from the US.Indian exchanges, especially the NSE, are pursuing approval from the US derivatives regulator with some urgency as the Singapore Exchange or SGX is set to launch its own Indian equity derivatives contracts, which will be in direct competition with NSEs products, in June.The government has set up GIFT City, located between Gandhinagar and Ahmedabad, to compete with international financial centres such as Singapore and Hong Kong.Foreign investors have preferred the SGX Nifty futures contract, which will cease to trade there after the NSE and BSE licences expire in August.
Over the past two decades, the SGX Nifty offered access to a dollar-denominated product, which reduced currency-exchange related risk.
Another advantage was the island-nations less onerous tax laws.NSE and BSE already have CFTC approval for derivatives on Nifty and Sensex contracts traded in Mumbai.The decision to end licensing agreements with foreign bourses in February was triggered by SGXs move to introduce stock derivatives earlier, sparking panic among Indian exchanges and authorities, which fear a further flight of activity to Singapore.
Trading volumes in SGX Nifty contracts are much higher than Nifty contracts on NSE.To smoothen the entry of American investors into GIFT City, the exchanges will also seek CFTC approval, on behalf of stock brokers, for selling market futures and options available in GIFT City in the US under Regulation 30.10.
Foreign brokers require the commissions approval to sell offshore derivative contracts to clients in the US.NSE and BSE confirmed they are in the process of filing this application.US commodities futures law applies certain restrictions on US clients wanting to trade in foreign soil, said Sandeep Parekh, founder, Finsec Law Advisors, a Mumbai-based law firm thats helping BSE to apply to CFTC.
Such clients must either go through a US CFTC registered intermediary or through a special permission.
This permission is sought for by a foreign exchange, like the BSE, on behalf of its members in a representative capacity.