April 30, 2008
Ashish Rukhaiyar
MUMBAI
THE Reserve Bank of India’s (RBI) eagerness to flag off currency futures in the country is well known. Now the Securities & Exchange Board of India (Sebi) has got into the act and is pushing it through the fast lane.
According to sources familiar with the development, Sebi and stock exchange officials have met more than once in a fortnight to deliberate on the issues that will be handled at the exchange level. “Things are moving quite fast,” a person familiar with the development said, adding that “something concrete can be expected in near future”.
Sources add that Sebi and exchange officials discussed structural issues related to the currency contracts like tenor and settlement of contracts apart from the platform that will be used to launch the futures trading. Incidentally, RBI released its final report of its internal working group on currency futures on Monday, supporting the initiative to launch forex futures in domestic exchanges.
More importantly, the market regulator has given the exchanges one week’s time to decide on specifics like margins and surveillance, among other issues. “As for all other segments, exchanges will decide on the margins (like VaR, ELM, MTM) for the currency market too and submit the same to Sebi within a week,” the source said.
RBI, in its Monday report, said “day-to-day margining may be left to the discretion of clearing corporations” as the “settlement (is to) be done at exchange-specific clearing corporations”. However, it added that RBI “may have overriding powers to prescribe margins and/or impose specific margins for identified segments of the market, if necessary”.
Meanwhile, after Sebi’s deliberations with the bourses are over, the regulator will collate the feedback and discuss the same with the central bank that will play a key role as currency is the central bank’s domain. Sebi and RBI have formed a joint committee to look into the issue of currency futures. Sebi’s role, once the market gets operational, will be limited to regulating the clearing and settlement aspects as those will be done on the bourses.
On the other hand, RBI will keep a tab on the eligible participants and intermediaries that will include banks and brokers. The central bank feels that while banks can be allowed to become direct members of the futures exchange, brokers may be permitted only if they meet fit and proper criteria as well as other eligibility norms.
Wednesday 30 April 2008
Tuesday 29 April 2008
FIs, FIIs join queue for DMA facility
Kotak Sec, Anand Rathi, Reliance Sec & CLSA
Get SE Clearance To Offer Direct Market Access
Apr 29, 2008
Ashish Rukhaiyar & Apurv Gupta
MUMBAI
IT’S still early days to gauge the acceptance of the direct market access (DMA) facility that enables institutional clients to trade in stocks without a broker’s intervention. However, word on the street is that the ‘trickle’ is fast becoming a sustained flow with more and more players signing up for the DMA facility.
According to people familiar with the development, domestic heavyweights like Kotak Securities, Anand Rathi Securities and Reliance Securities have already received the go-ahead from the stock exchanges. CLSA is said to be the first among foreign majors. Then there are those who are awaiting approval.
“The list of pending applications is dominated by foreign entities,” said a source. UBS, Morgan Stanley, JP Morgan and DSP Merrill Lynch are the entities awaiting approval. Edelweiss Capital, India Infoline and Motilal Oswal Securities are the others who have submitted their request to the stock exchanges.
Unlike SLB (securities lending and borrowing), brokerages interested in offering DMA facility do not have to deposit any money with the stock exchanges. Stock exchanges, on their part, would assign a unique number to the terminal allotted to the broker that will enable them (exchanges) to keep a track of the trades undertaken.
The direct market access facility enables clients to access the exchange trading system through a brokers’ infrastructure but without manual intervention by the brokers. With this facility, Sebi intends to put a brake on front-running activities, as it will allow institutional investors to directly place orders. While brokers would still be aware of the orders placed by their clients using DMA, it will be only after the order has been executed.
While DMA is new to India, globally the system has succeeded in garnering a substantial share of the daily turnover. Market players say that in the US, DMA accounts for around 25-30% of the daily stock market turnover. In most of the leading European markets too, around 15-20% of the volume is attributed to DMA.
Market players also feel that since DMA offers direct control over orders, it is expected to enhance the level of transparency apart from increasing liquidity and reducing impact costs of large orders. Also, the use of algorithm or programme trading, which is the backbone of DMA, will help players capitalise on the available arbitrage or hedging opportunities. Incidentally, some of the best hedge funds of the world including Renaissance Technologies, DE Shaw, Batterymarch and Barra are known to use ‘quant’ (programmed trading) methods extensively.
However, a section of the market is concerned about the infrastructure costs, which is expected to be substantial in size. “Players desirous of using quant methods require high end code writers (typically PhDs in maths or physics) apart from the necessary technology support. The set-up would require a few millions of dollars,” says a head of institutional equities of a brokerage that has applied for DMA registration.
Some also feel that the initial costs should not act as a dampener, for DMA would enable the client to maximise gains using complex algorithms. They feel that the recovery time can be reduced to a great extent.
Get SE Clearance To Offer Direct Market Access
Apr 29, 2008
Ashish Rukhaiyar & Apurv Gupta
MUMBAI
IT’S still early days to gauge the acceptance of the direct market access (DMA) facility that enables institutional clients to trade in stocks without a broker’s intervention. However, word on the street is that the ‘trickle’ is fast becoming a sustained flow with more and more players signing up for the DMA facility.
According to people familiar with the development, domestic heavyweights like Kotak Securities, Anand Rathi Securities and Reliance Securities have already received the go-ahead from the stock exchanges. CLSA is said to be the first among foreign majors. Then there are those who are awaiting approval.
“The list of pending applications is dominated by foreign entities,” said a source. UBS, Morgan Stanley, JP Morgan and DSP Merrill Lynch are the entities awaiting approval. Edelweiss Capital, India Infoline and Motilal Oswal Securities are the others who have submitted their request to the stock exchanges.
Unlike SLB (securities lending and borrowing), brokerages interested in offering DMA facility do not have to deposit any money with the stock exchanges. Stock exchanges, on their part, would assign a unique number to the terminal allotted to the broker that will enable them (exchanges) to keep a track of the trades undertaken.
The direct market access facility enables clients to access the exchange trading system through a brokers’ infrastructure but without manual intervention by the brokers. With this facility, Sebi intends to put a brake on front-running activities, as it will allow institutional investors to directly place orders. While brokers would still be aware of the orders placed by their clients using DMA, it will be only after the order has been executed.
While DMA is new to India, globally the system has succeeded in garnering a substantial share of the daily turnover. Market players say that in the US, DMA accounts for around 25-30% of the daily stock market turnover. In most of the leading European markets too, around 15-20% of the volume is attributed to DMA.
Market players also feel that since DMA offers direct control over orders, it is expected to enhance the level of transparency apart from increasing liquidity and reducing impact costs of large orders. Also, the use of algorithm or programme trading, which is the backbone of DMA, will help players capitalise on the available arbitrage or hedging opportunities. Incidentally, some of the best hedge funds of the world including Renaissance Technologies, DE Shaw, Batterymarch and Barra are known to use ‘quant’ (programmed trading) methods extensively.
However, a section of the market is concerned about the infrastructure costs, which is expected to be substantial in size. “Players desirous of using quant methods require high end code writers (typically PhDs in maths or physics) apart from the necessary technology support. The set-up would require a few millions of dollars,” says a head of institutional equities of a brokerage that has applied for DMA registration.
Some also feel that the initial costs should not act as a dampener, for DMA would enable the client to maximise gains using complex algorithms. They feel that the recovery time can be reduced to a great extent.
Nearly 50 brokers register for SLB
Apr 25, 2008
Ashish Rukhaiyar
MUMBAI
THOUGH securities lending and borrowing (SLB) mechanism is yet to register meaningful volumes, almost 50 brokerages have gone ahead and registered with the stock exchanges to be a part of the new market. Brokerages that wish to participate in SLB are required to enter into separate agreements with both the stock exchanges (BSE and NSE) and deposit a base capital. Interestingly, domestic brokerages have outnumbered their foreign counterparts in being amongst the first ones to register for SLB.
According to people familiar with the development, domestic entities like Edelweiss Securities, Geojit Financial Services, Prabhudas Lilladher, Sharekhan, BRICS Securities, Nirmal Bang Securities, Networth Stock Broking, JM Financial and Religare Securities are some of the entities that have registered for SLB.
Among the foreign brokerages, DSP Merrill Lynch, HSBC Securities, Deutsche Equities and ABN AMRO Asia Equities have taken the lead. The list also includes many niche brokerages like Marwadi Shares and Finance, BLB and MF Global which are well-known in the arbitrage arena.
It is also believed that on an average around four to five brokerages apply for registration every week with the stock exchanges to participate in SLB. However, if the volumes are an indication, it would be some time before SLB starts generating income for these entities.
As per NSE data, since April 21 (when SLB was introduced) only six trades have been reported in the SLB window. On April 21, there were four trades, while Tuesday and Wednesday witnessed one trade each. There were no trades on Thursday in the SLB window. The volume has also been quite low with no more than hundred odd shares being traded every day.
Most market participants believe the short-selling mechanism would take some time to pick up, given the presence of a deep single stock futures market. Investors can sell stock futures out of the basket of 227 stocks at a much lower cost than short-selling in the cash market. Market players also seem to be awaiting more clarity about the functioning of the SLB mechanism. The higher execution costs are also said to be a hindrance.
Interestingly, while these entities might still have to wait for the SLB mechanism to gather pace and generate income for them, the exchanges have already garnered Rs 5 crore (each brokerage has to deposit Rs 10 lakh with the exchange as base capital) that will help boost their income. Incidentally, stock exchanges are allowed to invest their funds only in bank deposits, government securities and triple ‘A’ rated bonds.
Ashish Rukhaiyar
MUMBAI
THOUGH securities lending and borrowing (SLB) mechanism is yet to register meaningful volumes, almost 50 brokerages have gone ahead and registered with the stock exchanges to be a part of the new market. Brokerages that wish to participate in SLB are required to enter into separate agreements with both the stock exchanges (BSE and NSE) and deposit a base capital. Interestingly, domestic brokerages have outnumbered their foreign counterparts in being amongst the first ones to register for SLB.
According to people familiar with the development, domestic entities like Edelweiss Securities, Geojit Financial Services, Prabhudas Lilladher, Sharekhan, BRICS Securities, Nirmal Bang Securities, Networth Stock Broking, JM Financial and Religare Securities are some of the entities that have registered for SLB.
Among the foreign brokerages, DSP Merrill Lynch, HSBC Securities, Deutsche Equities and ABN AMRO Asia Equities have taken the lead. The list also includes many niche brokerages like Marwadi Shares and Finance, BLB and MF Global which are well-known in the arbitrage arena.
It is also believed that on an average around four to five brokerages apply for registration every week with the stock exchanges to participate in SLB. However, if the volumes are an indication, it would be some time before SLB starts generating income for these entities.
As per NSE data, since April 21 (when SLB was introduced) only six trades have been reported in the SLB window. On April 21, there were four trades, while Tuesday and Wednesday witnessed one trade each. There were no trades on Thursday in the SLB window. The volume has also been quite low with no more than hundred odd shares being traded every day.
Most market participants believe the short-selling mechanism would take some time to pick up, given the presence of a deep single stock futures market. Investors can sell stock futures out of the basket of 227 stocks at a much lower cost than short-selling in the cash market. Market players also seem to be awaiting more clarity about the functioning of the SLB mechanism. The higher execution costs are also said to be a hindrance.
Interestingly, while these entities might still have to wait for the SLB mechanism to gather pace and generate income for them, the exchanges have already garnered Rs 5 crore (each brokerage has to deposit Rs 10 lakh with the exchange as base capital) that will help boost their income. Incidentally, stock exchanges are allowed to invest their funds only in bank deposits, government securities and triple ‘A’ rated bonds.
Few takers for repriced I-Sec ESOPs
Apr 24, 2008
Ashish Rukhaiyar
MUMBAI
FINANCIAL services firm ICICI Securities is finding few takers for its employee stock option plan (ESOP), after it was repriced recently. As per the new formula, the price of the stock option has been linked to the price at which the pre-IPO placement will be done.
Industry sources said many employees who left the firm in the recent past, did so after being offered the stock options. Lack of clarity over the proposed public issue and the new pricing of the stock options are said to be the main reasons for employees refusing to accept it. Also, the vesting period has been increased to five years from the earlier three years.
According to sources, the earlier ESOP package was structured around October and employees were offered stock options at Rs 193 per share. The vesting period was fixed at three years ie every year the employee will be given one-third of the number of shares allotted. Thus, for instance, if the employee is given 99 shares as stock options with the vesting period as three years, every year he will be given 33 shares.
However, during January this year, when the board of ICICI Securities approved the initial public offer and private placement of shares, the ESOP package was also redesigned. According to the new package, the share price was linked to the pre-IPO placement and the vesting period was increased to five years.
“Employees were offered shares at a discount of Rs 800 to the pre-IPO placement,” said the source. “Most of the employees turned apprehensive as the stock markets went for a toss and valuations of most financial entities took a beating. The fact that vesting period was increased to five years did not help either,” he added. A company spokesperson declined to comment on the issue.
Linking the stock option price to the public issue or the pre-IPO placement was the last thing that employees could have asked for, said people familiar with the development. “Employees were left wondering at what price the issue will hit the market so that they can profit from it. Expecting a price in the range of Rs 1,000 to Rs 1,300 in the current market conditions is suicidal. A few exits at the senior level in the recent past has been the outcome of this stock option plan,” they add.
Harendra Kumar, who was heading the research team at ICICI Direct, left recently and joined Centrum as its head of research. It is believed that Anand Shah, who tracks the FMCG sector has also resigned.
Interestingly, the market is already abuzz with talks that the pre-IPO placement and the public issue is off for the time being. Recently, ICICI Bank MD & CEO K V Kamath said they “will look at it (IPO of ICICI Securities) based on market condition”. At present, there is no particular hurry to list the shares of the company, he had added.
Interestingly, ICICI Bank joint managing director & CFO Chanda Kochhar, in January, had said the shares of ICICI Securities will be listed on the bourses in about six months. The board has decided to offload 15% of its shares to retail and institutional investors.
ICICI Securities has an equity capital of Rs 61 crore and is a major player in retail broking. It posted revenues of Rs 527 crore during the first nine months of 2007-08, while profits stood at Rs 108 crore in the same period.
Ashish Rukhaiyar
MUMBAI
FINANCIAL services firm ICICI Securities is finding few takers for its employee stock option plan (ESOP), after it was repriced recently. As per the new formula, the price of the stock option has been linked to the price at which the pre-IPO placement will be done.
Industry sources said many employees who left the firm in the recent past, did so after being offered the stock options. Lack of clarity over the proposed public issue and the new pricing of the stock options are said to be the main reasons for employees refusing to accept it. Also, the vesting period has been increased to five years from the earlier three years.
According to sources, the earlier ESOP package was structured around October and employees were offered stock options at Rs 193 per share. The vesting period was fixed at three years ie every year the employee will be given one-third of the number of shares allotted. Thus, for instance, if the employee is given 99 shares as stock options with the vesting period as three years, every year he will be given 33 shares.
However, during January this year, when the board of ICICI Securities approved the initial public offer and private placement of shares, the ESOP package was also redesigned. According to the new package, the share price was linked to the pre-IPO placement and the vesting period was increased to five years.
“Employees were offered shares at a discount of Rs 800 to the pre-IPO placement,” said the source. “Most of the employees turned apprehensive as the stock markets went for a toss and valuations of most financial entities took a beating. The fact that vesting period was increased to five years did not help either,” he added. A company spokesperson declined to comment on the issue.
Linking the stock option price to the public issue or the pre-IPO placement was the last thing that employees could have asked for, said people familiar with the development. “Employees were left wondering at what price the issue will hit the market so that they can profit from it. Expecting a price in the range of Rs 1,000 to Rs 1,300 in the current market conditions is suicidal. A few exits at the senior level in the recent past has been the outcome of this stock option plan,” they add.
Harendra Kumar, who was heading the research team at ICICI Direct, left recently and joined Centrum as its head of research. It is believed that Anand Shah, who tracks the FMCG sector has also resigned.
Interestingly, the market is already abuzz with talks that the pre-IPO placement and the public issue is off for the time being. Recently, ICICI Bank MD & CEO K V Kamath said they “will look at it (IPO of ICICI Securities) based on market condition”. At present, there is no particular hurry to list the shares of the company, he had added.
Interestingly, ICICI Bank joint managing director & CFO Chanda Kochhar, in January, had said the shares of ICICI Securities will be listed on the bourses in about six months. The board has decided to offload 15% of its shares to retail and institutional investors.
ICICI Securities has an equity capital of Rs 61 crore and is a major player in retail broking. It posted revenues of Rs 527 crore during the first nine months of 2007-08, while profits stood at Rs 108 crore in the same period.
SEs find bond index difficult to construct
Apr 23, 2008
Ashish Rukhaiyar & Gaurav Pai
MUMBAI
STOCK exchanges are finding it difficult to follow a recent Sebi circular asking them to design a bond index, similar to benchmark indices like Sensex or Nifty for stocks. According to a source, factors like illiquidity in the bond market and a predominance of over-the-counter (OTC) trading are acting as major hindrances. The fact that there are hardly any bonds with volumes enough to justify their inclusion in such an index is not helping things either.
In a circular dated April 4, Sebi told stock exchanges to “construct a bond index (both corporate & GOI) and disseminate the same”. The regulator had then said the exchanges are free to decide whether they want to adopt any of the bond index computation models available globally or develop their own model.
“Creating a bond index is proving difficult, as there are hardly any bonds that are traded on a daily basis,” said an industry source, adding that “unless bonds are exchange traded, creating an index will always be a tough task.” Sources further said at least 10-15 constituents (bonds) are required for creating an index that reflects the correct picture.
BSE managing director Rajnikant Patel agreed that “liquidity is an issue”, but added that it will be “factored in” while making the index. Mr Patel added that the “exchange is committed in working towards constructing a bond index” even as there exists a “parallel OTC bond market”. Meanwhile, an NSE spokesperson refused to comment on the issue. An email sent to the exchange (NSE) also remained unanswered till the time of going to the press.
For equities, exchanges design indices by choosing a basket of stocks based on their popularity and assign them a weightage based on their market capitalisation. But as Krishnan Sitaraman, head, financial sector ratings at Crisil said things at debt market are very different. “As it is in Indian bond markets, especially for corporate bonds, volumes are minimal and there are not many trades on an everyday basis. Consequently, to assign a value to a particular bond in an index is a tough job,” he says.
Crisil constructs bond indices, but they are only available to its paid subscribers, which include mutual fund houses and insurance companies. It designs those indices based on credit quality of securities, market feedback and actual trades.
Mr Sitaraman said there is not yet any concrete proposals from any of the exchanges to set up any bond indices for them. The fact that banks (dominant players in the OTC bond market ) are regulated by RBI (and not Sebi like the exchanges) is also adding a new dimension to the rules framing process, the source added. Going ahead, Sebi also intends to introduce derivatives on bond index “based on experience gained and awareness generated”.
Ashish Rukhaiyar & Gaurav Pai
MUMBAI
STOCK exchanges are finding it difficult to follow a recent Sebi circular asking them to design a bond index, similar to benchmark indices like Sensex or Nifty for stocks. According to a source, factors like illiquidity in the bond market and a predominance of over-the-counter (OTC) trading are acting as major hindrances. The fact that there are hardly any bonds with volumes enough to justify their inclusion in such an index is not helping things either.
In a circular dated April 4, Sebi told stock exchanges to “construct a bond index (both corporate & GOI) and disseminate the same”. The regulator had then said the exchanges are free to decide whether they want to adopt any of the bond index computation models available globally or develop their own model.
“Creating a bond index is proving difficult, as there are hardly any bonds that are traded on a daily basis,” said an industry source, adding that “unless bonds are exchange traded, creating an index will always be a tough task.” Sources further said at least 10-15 constituents (bonds) are required for creating an index that reflects the correct picture.
BSE managing director Rajnikant Patel agreed that “liquidity is an issue”, but added that it will be “factored in” while making the index. Mr Patel added that the “exchange is committed in working towards constructing a bond index” even as there exists a “parallel OTC bond market”. Meanwhile, an NSE spokesperson refused to comment on the issue. An email sent to the exchange (NSE) also remained unanswered till the time of going to the press.
For equities, exchanges design indices by choosing a basket of stocks based on their popularity and assign them a weightage based on their market capitalisation. But as Krishnan Sitaraman, head, financial sector ratings at Crisil said things at debt market are very different. “As it is in Indian bond markets, especially for corporate bonds, volumes are minimal and there are not many trades on an everyday basis. Consequently, to assign a value to a particular bond in an index is a tough job,” he says.
Crisil constructs bond indices, but they are only available to its paid subscribers, which include mutual fund houses and insurance companies. It designs those indices based on credit quality of securities, market feedback and actual trades.
Mr Sitaraman said there is not yet any concrete proposals from any of the exchanges to set up any bond indices for them. The fact that banks (dominant players in the OTC bond market ) are regulated by RBI (and not Sebi like the exchanges) is also adding a new dimension to the rules framing process, the source added. Going ahead, Sebi also intends to introduce derivatives on bond index “based on experience gained and awareness generated”.
SEs start mock trial of short-selling mechanism
Apr 17, 2008
Gaurav Pai & Ashish Rukhaiyar
MUMBAI
AS the Monday deadline for introduction of short-selling approaches, India’s two stock exchanges have started mock trials with their recently installed securities lending and borrowing (SLB) mechanisms. While the initial response from most institutions are mixed, most agree that there is now a greater clarity on the norms.
“We have already started trials for the SLB mechanism,” Rajnikant Patel, MD of BSE said at a function organised to unveil its tie up with Bank of India as its clearing member for the purpose. NSE commenced its dummy runs of the system last Monday . Mr Patel clarified that initially all participants using the SLB window will have to pay the whole margin upfront while borrowing stocks, besides paying the relevant mark-to-market margins.
ET spoke to some of the largest institutions in the country who participated in these trial sessions by NSE. Most felt that single stock futures would work out cheaper. “A part of the market which exist outside is being regularised locally, which is fine. However, the mechanism that has been proposed is not necessarily the most efficient or effective,” said the head of equities at a foreign brokerage.
Under a 25% margin, a person who is borrowing shares worth Rs 100, will have to deposit Rs 125 initially, a part of which will go to the lender and the balance will remain as a deposit with the exchange. The rules at NSE are expected to be on the similar lines.
Meanwhile AC Gautam, MD of BOI Shareholding, Bank of India’s arm for this purpose said that till date around 25 members of the exchange have registered for the service and most of these are domestic players. NSE’s clearing and settlement subsdiary, NSCCL — National Securities Clearing Corporation — will also do similar functions for which it has tied up with eight major banks.
Gaurav Pai & Ashish Rukhaiyar
MUMBAI
AS the Monday deadline for introduction of short-selling approaches, India’s two stock exchanges have started mock trials with their recently installed securities lending and borrowing (SLB) mechanisms. While the initial response from most institutions are mixed, most agree that there is now a greater clarity on the norms.
“We have already started trials for the SLB mechanism,” Rajnikant Patel, MD of BSE said at a function organised to unveil its tie up with Bank of India as its clearing member for the purpose. NSE commenced its dummy runs of the system last Monday . Mr Patel clarified that initially all participants using the SLB window will have to pay the whole margin upfront while borrowing stocks, besides paying the relevant mark-to-market margins.
ET spoke to some of the largest institutions in the country who participated in these trial sessions by NSE. Most felt that single stock futures would work out cheaper. “A part of the market which exist outside is being regularised locally, which is fine. However, the mechanism that has been proposed is not necessarily the most efficient or effective,” said the head of equities at a foreign brokerage.
Under a 25% margin, a person who is borrowing shares worth Rs 100, will have to deposit Rs 125 initially, a part of which will go to the lender and the balance will remain as a deposit with the exchange. The rules at NSE are expected to be on the similar lines.
Meanwhile AC Gautam, MD of BOI Shareholding, Bank of India’s arm for this purpose said that till date around 25 members of the exchange have registered for the service and most of these are domestic players. NSE’s clearing and settlement subsdiary, NSCCL — National Securities Clearing Corporation — will also do similar functions for which it has tied up with eight major banks.
Nifty trade in Singapore on Sebi radar
Turnover Up On SGX, Down Here
Apr 10, 2008
Ashish Rukhaiyar & Gaurav Pai
MUMBAI
IT STARTED off as a trickle, but authorities are now worried that it may soon turn into a flood. Traded turnover in Nifty futures on the National Stock Exchange (NSE) has dropped since the stock market correction that began in January. However, that is not the case with Nifty futures being traded on the Singapore Exchange (SGX), where turnover is steadily rising.
Initially, it was only market participants who were worried that the Singapore market may soon dictate prices of the Nifty in India. Now, it appears Sebi too shares the view. The regulator has asked the NSE to collate data related to trading of Nifty futures on the SGX, a person familiar with the development said. Sebi also wants the NSE to get details of players who are active in these futures, the source added. But the latter data may be hard to come by, unless the Singapore authorities decide to cooperate.
Sebi’s concerns stem from the fact that on some days, the number of Nifty futures contracts traded on the SGX has been more than 30% of that traded in the domestic market (on the NSE). Traders in Singapore were not so enthusiastic about Nifty futures till a few months back.
According to Bloomberg data, the number of contracts on the SGX Nifty futures was less than 10% of that of the NSE for most of last year. Simply put, if there are 1,000 Nifty futures outstanding contracts on the NSE, there are around 300 on the SGX. It is also believed that the leverage available on the SGX is much higher due to lower margins that participants have to deposit while taking an exposure.
PN norms may have led to shift
AT a recent conference, NSE’s MD Ravi Narain, in response to a question on the rising Nifty volumes on the Singapore Exchange, had commented: “The tightening of participatory note (PN)regulations has led to several players finding it difficult to take exposure to Indian equities directly (through Indian exchanges). Its obvious that these players may be taking the Singapore route.” But an NSE spokesperson did not reply to the questionnaire sent by this newspaper on Wednesday.
In October, Sebi had banned foreign institutional investors (FIIs) from issuing PNs with equity derivatives as the underlying, to their overseas clients. The flourishing PN business had meant that a lot of transactions were taking place outside the Indian exchanges, between FIIs. Phasing out PNs was a move to bring all such transactions back to India. But this only seems to have driven those investors to Singapore, from where they can easily bet on Nifty futures. The price on the Singapore Exchange is being closely watched due to the time difference between India and Singapore. The Singapore Exchange opens two-and-a-half hours before the Indian market and many traders prefer to look at Nifty price on SGX for cues.
Apr 10, 2008
Ashish Rukhaiyar & Gaurav Pai
MUMBAI
IT STARTED off as a trickle, but authorities are now worried that it may soon turn into a flood. Traded turnover in Nifty futures on the National Stock Exchange (NSE) has dropped since the stock market correction that began in January. However, that is not the case with Nifty futures being traded on the Singapore Exchange (SGX), where turnover is steadily rising.
Initially, it was only market participants who were worried that the Singapore market may soon dictate prices of the Nifty in India. Now, it appears Sebi too shares the view. The regulator has asked the NSE to collate data related to trading of Nifty futures on the SGX, a person familiar with the development said. Sebi also wants the NSE to get details of players who are active in these futures, the source added. But the latter data may be hard to come by, unless the Singapore authorities decide to cooperate.
Sebi’s concerns stem from the fact that on some days, the number of Nifty futures contracts traded on the SGX has been more than 30% of that traded in the domestic market (on the NSE). Traders in Singapore were not so enthusiastic about Nifty futures till a few months back.
According to Bloomberg data, the number of contracts on the SGX Nifty futures was less than 10% of that of the NSE for most of last year. Simply put, if there are 1,000 Nifty futures outstanding contracts on the NSE, there are around 300 on the SGX. It is also believed that the leverage available on the SGX is much higher due to lower margins that participants have to deposit while taking an exposure.
PN norms may have led to shift
AT a recent conference, NSE’s MD Ravi Narain, in response to a question on the rising Nifty volumes on the Singapore Exchange, had commented: “The tightening of participatory note (PN)regulations has led to several players finding it difficult to take exposure to Indian equities directly (through Indian exchanges). Its obvious that these players may be taking the Singapore route.” But an NSE spokesperson did not reply to the questionnaire sent by this newspaper on Wednesday.
In October, Sebi had banned foreign institutional investors (FIIs) from issuing PNs with equity derivatives as the underlying, to their overseas clients. The flourishing PN business had meant that a lot of transactions were taking place outside the Indian exchanges, between FIIs. Phasing out PNs was a move to bring all such transactions back to India. But this only seems to have driven those investors to Singapore, from where they can easily bet on Nifty futures. The price on the Singapore Exchange is being closely watched due to the time difference between India and Singapore. The Singapore Exchange opens two-and-a-half hours before the Indian market and many traders prefer to look at Nifty price on SGX for cues.
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