SGX, in the first place, got a toehold in the business by using products that NSE had licensed to it. And before NSE could realise the size of the opportunity, SGX had already entrenched itself deeper into the domain. So much so, when NSE eventually pulled the plug last year, SGX quickly organised itself and sought to stand up on its own, leaving no room for NSE to strike a bargain.
In a last-ditched effort, NSE has now approached the Bombay High Court for an interim injunction on the alternative products that SGX is planning to launch on June 4.
"SGX's position would be that its products may not be under legal territorial jurisdiction because it is not the underlying security that it is offering, it's just that the price of its product is determined in reference to an underlying Indian price. There may be claims of IPR violation, in case they name their products similar to NSE's," said CA Dr Suresh Surana, Founder at RSM Astute Consulting Group.
Harry Parikh, Associate Partner for Transaction Tax at BDO India noted that India is a significant player within Asia markets.
"Indian market-based alternatives traded outside of India can diminish the volumes, reduce the foreign inflows and also take away its significance from international market. The court case is more than just a tug of war between two platforms. It might reshape the entire Indian stock market considering the fact that international investors are key players on NSE,” Parikh said.
Shares of Singapore Exchange dropped 2 per cent to Singapore dollar 7.48 in morning trade on Tuesday following the news of the court case.
SGX said it has the required regulatory approvals and is confident that its products would list in June before its licence with NSE expires in August.
The Bombay High Court is likely to take up NSE’s petition as early as Wednesday, May 23.
“We have no comment to offer on the matter for now,” an NSE official said when ETMarkets.com reached out for a comment.
SGX’s licensing agreement with NSE allowed it to offer trading in Nifty50 futures and options in Singapore. Over the past couple of years, trading volume in Nifty futures on SGX exceeded that of NSE’s, as cheaper costs, better tax rates and higher liquidity in Singapore attracted foreign investors to the bourse.
Some reports said SGX accounted for 40 per cent of Nifty futures turnover at one point and had as much as 70 per cent of open interest on its platform.
In a bid to stem the migration of liquidity to SGX, NSE in February ended its data-licensing pact with the exchange and informed SGX that the licensing of its products would expire in August.
The move did not go down well with foreign investors, with the US-based index provider MSCI terming it as “anti-competitive.”
Desperate to protect its share of the pie, SGX hit back in April, announcing the launch its own Nifty50-related products even as it prepared to delist all derivatives contracts, including Nifty futures, which were based on its partnership with NSE.
In doing so, SGX took a circuitous route. It acquired direct market access to India futures & options in the US from the US Commodity Futures Trading Commission (CFTC), thus paving way for the exchange to offer new Nifty-based products to US investors.
“Our new India equity derivative products are essential to enable institutional investors to maintain their current portfolio risk exposure to the Indian capital markets,” SGX said on Tuesday.
NSE also tried to take the fight to the US. This past week, the Indian bourse received a nod from the US derivatives regulator to sell its product to US investors. Thus far, US investors has been restricted from participating in Indian derivatives market directly, due to which they either had to do so through SGX or various off-shore entities.
SGX was readying to launch its new products on SGX Titan DT – a trading and Clearing Infrastructure based on NASDAQ Genium INET platform.