Markets

Singapore’s India stock trading link ends 18-month dispute

By Andy Mukherjee

Its a status thing. Rising Asian superpowers must have their stock connects. China has a pipe going with Hong Kong, so India also has to have one – with Singapore.

But while the Peoples Republic has allowed two-way capital flows between Shanghai and Shenzhen on one side and the special administrative region on the other, New Delhi wants one-way traffic. Money will travel only into India under a stock-trading link to be established by Singapore Exchange Ltd. with the so-called GIFT City, a new international financial center in Prime Minister Narendra Modis home state of Gujarat.

The pipe is a peace offering from SGX to end an 18-month-long skirmish with the National Stock Exchange of India Ltd., one of its most important partners. However, the Tuesday evening announcement from the two exchanges creates new uncertainties for investors.

A Big Market
The biggest is what happens to SGX futures now that the exchange has decided to channel liquidity into a dollar-denominated contract on Indias Nifty stock-market benchmark traded in GIFT City. Thats a $450 billion question, based on the current index value and the more than 20 million futures that changed hands in the 12 months through June. Its very likely that the Singapore contract, operated under a license granted by the NSE, will cease to exist once the pipe starts gurgling before the end of 2020.

Winding up an overseas market thats existed for 19 years is the latest manifestation of New Delhis zeal to bring all trading in Indian risk back home, a nationalist project that has often backfired in the past. But if the Singapore contract stays alive, why would any foreign investor want to go to a joyless ghost town?

Forget Gujarats prohibition on alcohol. So far, there isnt even a dedicated regulator in place for the international financial center, which will operate in a very different legal environment from the domestic rupee-denominated market. A recent dispute in which an Indian broker allegedly stole a client's securities and pledged them as collateral for its own trade has been so badly handled that global banks are worried if the new market will function any better. And while New Delhi announced a slew of liberal fiscal incentives last month to lure brokers and funds to set up in GIFT City, investors cant be certain that tax laws wont suddenly become less favorable in future. That happens a lot in India.

The dread of the Indian taxman is a showstopper. Most overseas hedge-fund managers in Singapore want to go nowhere near the local Indian market, especially if they cant prove to Indian authorities that their fund isnt a tax dodge. Theyre happy to be left alone with uninterrupted access to the SGX Nifty in a city-state that imposes no capital gains tax.

As for specific Indian shares, the present arrangement works just fine: The investor enters into a swap contract with a global bank referencing an Indian single-stock future listed on the SGX. Unlike the SGX Nifty, single-stock Indian futures in Singapore have no liquidity. But none is needed. The bank selling the swap will use its foreign institutional investor aRead More – Source
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