BSE, NSE, MSEI terminate data sharing agreements with foreign exchanges

To give a premise on what the three major indices have jointly agreed to discontinue is that Indian exchanges through various contracts and licenses provide market data to Index providers. This data is used as real-time, delayed feed etc which enabled international stock exchanges, derivative trading exchanges or platforms to settle trade at their end.

This termination of data sharing agreement will curb the volumes of futures trade that foreign portfolio investors make to hedge their exposure in the cash segment in foreign exchange. Such trades are predominately placed from Singapore, which offers cost and tax advantages. This move will hit derivatives tied to the Nifty50 and S&P BSE Sensex, but not to exchange-traded funds (ETFs).

The three exchanges, NSE, BSE, MSEI in consultation with the Finance Ministry and SEBI have decided to terminate the data sharing licenses given to foreign exchanges. The joint statement issued by the exchanges said that volumes in derivative-based trading of Indian stocks, including indices, had increased to substantially huge proportions in some select foreign exchanges, which resulted in the migration of liquidity from Indian shores.

Now as foreign exchanges and trading platforms are not licensed to use indexes and data for derivatives, they can no longer trade any existing derivatives. Also, without a license the products provided by these international exchanges and platform will become illegal and sophisticated investors will not invest in these products.

Previously, SEBI had banned P-notes from taking naked derivative positions in the Indian market and renegotiated double tax avoidance agreement with Singapore.

Through these moves, the government indirectly wants to consolidate liquidity in the Indian markets. However, to help inflow to India, the government has already given foreign investors the option of International Finance Service Center (IFSC) and Gift City. Also, ETF is exempt as the Indian exchanges will continue to share data with institutions raising money through ETFs.