In a move that could catalyse a significant scale-up in financial services in the Gujarat International Finance Tec-City (Gift City), the government has eased regulatory norms to a proposed special purpose vehicle (SPV) that will bring onshore trading activity on SGX NIFTY, a derivative of the NSE’s NIFTY index traded officially on the Singapore Stock Exchange.
The SPV is between Singapore Exchange Ltd (SGX) and NSE IFSC — the international exchange of NSE. Currently, several overseas investors trade in security contracts at the SGX with the underlying NSE’s NIFTY 50 index.
This activity is expected to move to Gift City with the Finance Ministry last week relaxing Rule 9 (2) of the Prevention of Money Laundering Act (PMLA) that deals with Know Your Customer compliance and client due diligence.
Under this, KYC and due diligence will be subject to applicable laws in Singapore and when such details are required by the Indian regulator or investigative agencies here, these will be provided by Monetary Authority of Singapore (MAS). This will help faster on-boarding of overseas clients who currently trade NIFTY contracts at SGX.
Liquidity boost for global centre
Since liquidity in a stock exchange is a key driver for the financial services ecosystem, once SGX starts routing the liquidity in SGX Nifty from Singapore to Gift City, it is expected to attract international banks, brokerages, investment firms, mutual funds and insurance companies among others to set up their operations and develop Gift into a vibrant international financial centre.
In August 2019, the Securities and Exchange Board of India (SEBI) and MAS approved the proposed structure for the SPV. The two exchanges, NSE IFSC and SGX, were waiting for this PMLA-related approval from the Department of Revenue.
While an NSE spokesperson declined to comment, sources said that with the final clearance through, NSE IFSC-SGX should be able to move Nifty liquidity in Singapore to Gift City by middle of next year.
SEBI and MAS are signatories to the International Organization of Securities Commissions (IOSCO) multilateral memorandum of understanding by which both can share KYC-related information with each other.
Market participants say that once operations move, international banks, brokerages and investment firms will start setting up their operations in Gift City and develop it into a vibrant international financial centre. “This initial liquidity kicker is a great move to get all international banking liquidity in one shot,” said a market participant.
The benefit of the SPV structure is that orders of international markets would get routed to Gift City. For major global investors who tend to work with a set of international brokerages — who take them to various markets – this makes it easier to come through an existing set-up and trade in Gift City.
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