Rivalry between the stock exchange - BSE (Bombay Stock Exchange) & NSE (National Stock Exchange) has been going on for years and has intensified in the last decade. So when the stock exchanges including MSE (Metropolitan Stock Exchange) came out with a joint press release for not licensing of Indian Indices and market data of the securities listed or traded in India to any foreign exchanges didn't meet the eye. But when there is a dictate from the authority, you just need to follow orders.
It all started last month when SGX (Singapore Exchange) announcing that its wholly owned subsidiary Singapore Exchange Derivatives Trading would start single stock futures contract in February 2018. SGX already offers trading in Nifty Index contracts on its bourse therefore everyone knew the consequence of the single stock future contract move of volumes shrinking on the NSE.
But the story isn't about NSE losing volumes. The story is all about India's own international exchange at GIFT City, Prime Minister Narendra Modi's dream and pet project. Despite all fan following, the international exchange has been a non-starter. Every time the exchanges were asked why participation isn't increasing at GIFT City, there seems to be a constant answer of the GIFT City still not being tax efficient compared to other international exchanges. It was a great excuse for the Indian exchanges.
Once the announcement from SGX came in January 2018, it caught everyone's eye that SGX trades 70 to 75 per cent more volumes in Nifty index contracts than what it trades in India. With the news of SGX generating more volumes for the Indian product than its own market saw movement in the 'North Block' (the house of Ministry of Finance in New Delhi) which called upon The Securities Exchange Board of India (SEBI) before the Union Budget to get the details on how to attract volumes in its international exchange.
The finance minister in the Budget announced of having a unified regulator for international financial services centre (IFSC) at GIFT City and the most important and dampening for domestic investor is the abolition of short term capital gains (STCG) of 15 per cent thus being on par with the other financial centre and making it easy for firms to set up shops. It still continues with a 9 per cent minimum alternate tax (MAT).
After the budget announcement it was a matter of just formality and NSE was asked to cancel its licensing pact with SGX. However, NSE's argument was even if they cancel the licensing with SGX it doesn't stop the latter to tie-up with other exchange for getting market data as a result it saw SEBI calling all the stock exchanges and commodity exchanges to come together and make a joint statement of cancelling all licensing pact with foreign exchanges and not providing market data to any foreign exchanges.
The commodity exchanges got a relief as they made the presentation that for agri commodity, there is already a ban of sharing prices while for the non-agri commodity especially metals and energy, the Indian exchanges source pricing from the international exchanges. Therefore late Friday evening, it was the stock exchanges that came out with a joint announcement.
In fact more than NSE it's the BSE that tends to lose more as their tie-up with Dubai Gold and Commodities Exchange (DGCX) also comes to an end and BSE tend to lose revenues. Why BSE is a loser is because when it comes to derivatives the world considers Nifty than the Sensex.
For NSE one will still have to evaluate on the amount of loss and profit for them cancelling their licensing pact with SGX, but it should not make a big difference if its product runs on SGX or in its own exchange at GIFT City. In fact if the volumes remain the same as SGX, they would make more money as it was revenue sharing between NSE and SGX for the Nifty Index contract trading on the SGX.
The bigger concern is drying up of volumes in the domestic market. If it was to strengthen the domestic market the dictate from the authority could be a welcome move. But only for achieving success at GIFT City, the authorities are working against the interest of domestic investors, considering that they aren't allowed to trade on the international exchange. Nifty index contract trading in Singapore was a best example of Make in India and exported to the world. But this seems to be no more the focus. In fact in couple of months, MCX is expected to start trading in brass and it could be the price setter for the world.
Meanwhile, with the current dictate it's a clear indication that authorities are not thinking about domestic investors. On one hand they want domestic investors to come into the equity market and when they had just started to come in good numbers the government has further taxed them.
Today domestic investors pay from securities transaction tax (STT) to dividend distribution tax to short-term capital gains (STCG) of 15 per cent, to long term capital gains (LTCG) of 10 per cent to stamp duty which are waived or abolished in the international exchange at GIFT City.
Sometimes I tend to believe the previous SEBI chief once telling me that the government isn't bothered about retail investors investing in the equity market but they don't want any scam in the capital market. Not surprising that the domestic capital market isn't gaining depth and strength.