Sunday, July 18, 2010

Listing of NSE Nifty of CME

NSE had entered in pact with CME to list Nifty futures on CME and NSE can list futures on DJIA and S&P 500. CME is about to list NSE nifty and start trading on it from 17th July, 2010.

The Salient features of Listing are

a) Foreign Investors and NRI can take position on Nifty using CME platform.
b) It would mean you can trade on Nifty for about 23 hours in a day.
c) The listed NIFTY will be Dollar denominated, hence Foreign Investors need not hedge Rupee Exposure.
d) The Contract size of trading is about 10500 $ and 52500 $. (5 lakhs and 25 Lakhs)
e) The contract size of SGX nifty is also the same as the size on Lower denomination value futures on CME.
f) You can offset CME position on SGX and vice versa. It means the trader can take position in SGX and when SGX is closed he can simply close the position on CME.
g) There is no transaction charge on Nifty Futures on CME up to December, 2010.
h) Many FII and Hedge funds and unregulated entities need not register itself in India and can take position on Nifty.
i) The will be more arbitrage opportunities to global investors as same product is listed in different geographies.
j) They don’t have to pay STT in India which is a major transaction cost in Nifty trades done on NSE.
k) SGX has already signed a contract with NSE to provide Nifty Options, Hence Nifty option will also be traded globally.


Is there any concern of worry?
a) Price discovery will be better if the product is globalised. Nifty will also be looked upon as investment vehicle if there is sufficient interest, Volumes and Open Interest from other geographies.
b) Global Player can trade in Nifty anytime
c) I also perceive that combined Nifty volumes of all geographies will increase but the share of nifty trading in Indian Bourse will fall not only in percentile terms but also in Absolute terms. Because global player will prefer trading in SGX and CME as it will have lesser transaction cost and No STT and No Rupee Exposure.
d) Are many Indian Players equipped and have necessary Logistics and Infrastructure to trade in Global Markets. I guess the answer is No; Most of the Indian Brokerages, Banks and Prop Desk are not equipped. Nor do they possess the required Skill set also they are miniscule in size on global scale.  Also Indian Laws are tough for allow Indian Companies and Brokers to trade on Global Exchanges.
e) There is nothing in store for General Investor as he was always a price taker, but we will have to see Lead-Lag behavior of Nifty between Indian Exchange and Foreign Bourse.
f) 40% of Volume on NSE derivatives is for Nifty Options. As and when options will be traded on SGX we may see big shift in open Interests.


Will NSE lose its Market Share?
Yes NSE will lose volume to Foreign Bourse, but they will compensate fall in Transaction charges with huge license fee and charges from Listing of DJIA and S & P 500.



What will government lose?
Definitely STT, huge STT will be lost by government with shift in volumes, but Government may take solace in Lesser Tax litigation and less entry of unregulated entities.




4 comments:

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