The National Stock Exchange (NSE) has inked agreements with the Chicago Mercantile Exchange (CME) group and the Singapore Exchange (SGX) covering cross-listing of indices and a bilateral securities trading link, respectively, as well as product development and promotion.
The move comes quick on the heels of NSE increasing its stake in the National Securities Depository Ltd (NSDL) on Monday from 15.6% to 25.0%.
Under the agreement with the CME group, the Nifty index can be used for the creation and listing of future contracts denominated in dollars to be traded on the exchange. This would be made available to the CME group exclusively within the Americas as well as Europe and Asia.
Market participants feel this will help increase participation in Indian equities by retail investors elsewhere in the world.
“Foreign citizens cannot take a direct position in Indian markets, and can come in only through mutual funds and other institutions, which fall under the foreign institutional investor category. Making this product available on the CME would allow them to take a direct position on Indian equities,” said Mayank Shah, CEO, Anagram Securities.
“It appears to be a good development as this would make India a part of global indices. The volumes will build up gradually with the addition of these new financial products,” said Sandeep Tandon, CEO at Quant Capital.
Similarly, the rights to two indices whose products are traded on the CME, the S&P 500 and the Dow Jones Industrial Average, will be made available to the NSE for trading on the exchange in the form of rupee denominated futures, subject to regulatory approvals.
Indian citizens are only allowed to take part in delivery based transactions, even while investing in global securities. By making these rupee contracts available, Indian citizens will be able to hedge their positions which puts them on a better footing, said experts.
“The parties have also entered into a memorandum of understanding with respect to other areas of potential cooperation, including related to development and distribution of financial products and services,” said a release from the NSE.
In a simultaneous announcement, the NSE also announced an accord with SGX. The two exchanges will work together to develop and promote India-linked products and services to be listed on SGX. Subject to regulatory approval, these products may include equity products and other asset classes.
The two exchanges are also examining a trading link whereby investors in one country would be able to trade on the other country’s exchange.
Some suggest that these agreements maybe an indicator of an eventual extension of trading hours.
“Different trading timeline in India and US may lead to slower acceptability of these products as even now the volumes on SGX Nifty are lower till the Indian markets open up. We may see trading hours be extended in near future,” said the head of investment firm, not wishing to be quoted.
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