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Despite GAAR delay, SGX Nifty futures trade steady

With the end of 2012, the dust seems to have settled on the issue of a likely shift in the trading activity of Nifty index futures to the Singapore Exchange amidst delay of the general anti-avoidance rules.

With the end of 2012, the dust seems to have settled on the issue of a likely shift in the trading activity of Nifty index futures to the Singapore Exchange (SGX) amidst delay of the general anti-avoidance rules (GAAR). After reporting a significant surge between February and May 2012, due to concerns over GAAR implications, both the open interest and the volumes on Nifty futures traded on the SGX platform, have turned steady accounting for a greater proportion of the domestic trading than a year ago.

Latest data show the open interest of Nifty futures traded on SGX accounted for about 3% of that on NSE whereas volumes in terms of number of contracts traded constituted close to 25% of the trading on the domestic exchange. At the end of December 2011, these contributions stood at 2% and 10% respectively.

Market commentators acknowledge the trading activity on SGX as healthy and say a chunk of trading shift that happened in the first half of 2012 may stay there.

?While there has been a pause in the shift of Nifty futures trade to SGX, at 3% of that on NSE, the open interest on the Singapore platform appear significant,? said Siddarth Bhamre, head of derivatives with Angel Broking.

According to Bhamre, the open interest in the SGX Nifty which averaged at about 7 lakh share in December 2012, compared with 4.8 lakh share in January, may rise in-line with the overall recovery in trading action on local bourses.

After 2012-13 Union budget announced GAAR, uncertainty over its implementation weighed on the participation of foreign institutional investors, especially in the derivatives segment. The street feared FIIs may chose Singapore to carry out their India centric trades starting from the use of Nifty futures traded on the SGX.

? Most FIIs that shifted their derivatives trade on SGX on GAAR fears, may have maintained their trading in Singapore, as the liquidity has increased while transaction costs turn out to be lower,? Avio Shetty, derivatives trader with Prabhudas Lilladher.

However, some also pointed out that FIIs prefer to carry out their active trading strategies through domestic Nifty positions especially after the postponement of GAAR applications.

?While the core hedges are handled through SGX positions which are just rolled-over every month, the active proportion derivative portfolios are traded in India as counter-parties like HNI and retail trades are necessary,? said another trader.

?Even the thriving Nifty options trading on NSE provide another support compared with the Nifty options introduced on SGX last year which trade with low liquidity,? added Shetty.

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First published on: 05-01-2013 at 00:25 IST
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