GIFT Nifty: Is it Better Than SGX Nifty?

An initiative of cross-border significance between two nations, India and Singapore, GIFT Nifty is a dollar-denominated index derivative contract. GIFT Nifty, the relabelled version of SGX Nifty, combines India and Singapore's capital markets and tracks the performance of the Nifty 50 index. It is traded on the NSE International Exchange (NSE IX).

On July 03, 2023, Singapore Exchange, aka SGX Nifty, ceased functioning in Singapore as the overall trading volume and liquidity was switched to GIFT Nifty in India. Additionally, the total derivative contracts worth $7.5 billion were also transferred to India.

GIFT Nifty was moved from Singapore Exchange to Gujarat's International Finance Tec-City, aka GIFT City in Gandhinagar, Gujarat, marking a big step for India's finance sector. GIFT City is a Special Economic Zone (SEZ) created to attract foreign investment in the financial services sector. The NSE IX is the first stock exchange to be set up in GIFT City.

This was labelled to be a "watershed moment for India", as per V Balasubramaniam, MD and CEO of NSE International Exchange. The establishment of GIFT City will bring India a step closer to competing directly with the global financial centres in Dubai, Mauritius, and Singapore.

What is GIFT Nifty? How is it Different From SGX Nifty?

Currently, four products operate under the GIFT NIfty umbrella brand; GIFT Nifty 50, GIFT Nifty Bank, GIFT Nifty Financial Services and GIFT Nifty IT derivative contracts. This futures contract platform provides investors/traders better liquidity as well as boosts India's new finance hub, GIFT City. It also provides investors in both countries with a more efficient and cost-effective way to trade the Nifty 50 index.

All open positions in SGX were shifted to GIFT Nifty, which is now regulated by the International Financial Services Centres Authority (IFSCA). NSE IX would be the trading venue for US-dollar-denominated futures contracts instead of SGX Nifty since the transition.

As per the agreements between India’s NSE and Singapore's SGX, the expenses and profits related to this transition would be divided on a 50-50 basis. This also means that GIFT City will work as the trading venue for futures and options, and SGX will handle the clearing.

"This is the first of its kind trading link, with trading and matching in India and clearing and settlement in Singapore," said Loh Boon Chye, CEO of Singapore Exchange.
At present, there are more than 50 brokers in GIFT Nifty, and as per NSE IX, around 1,00,000 contracts are traded daily on average.

Nifty Upgrades from SGX to GIFT

Trading duration of 16 hours has been increased to 21 hours in GIFT Nifty in two sessions, 6:30 am to 3:40 pm and 4:35 pm to 2:45 am. The timings intersect the trading timings of Asia, Europe and the USA.
At present, 60 members from NSE are authorised to trade on GIFT Nifty, and 40 are in the process of joining, reaching the prior set mark of 100 local members of NSE. This will present investors with a better option as GIFT Nifty is a US-Dollar-denominated contract, whereas SGX Nifty was a Singapore Dollar denominated contract. Thus liquidity for the SGX Nifty was not ideal, and this was one of the reasons behind the transformation of SGX to GIFT Nifty.

Being regulated by IFSCA, GIFT Nifty is a more attractive option for Indian and foreign registered investors/traders who have an account in NSE IX as compared to SGX Nifty. This platform makes trading in the Nifty 50 index much easier by subtracting multiple steps for investors.

To develop its equity market, plans of bringing single stock futures and options trading for India’s largest companies are in process for GIFT City.

Why did SGX Nifty Become GIFT Nifty?

SGX Nifty was the first source traders looked at to gauge the market's mood for the day before trading in Nifty. NSE and SGX Nifty signed a licensing agreement, allowing SGX to offer trading in Nifty futures and options in Singapore.

This led to a rise in high traffic at SGX Nifty as it provided a simpler platform for both global and local Singaporean traders to trade in futures contracts. As per sources, over 1 million contracts were being traded daily, including ones from the Nifty 50 index. This led to the rise of a liquidity issue for the Nifty 50 index on the NSE. Plus, the rise in SGX Nifty was becoming a source of reduction for foreign investments in the Nifty 50 index. After all, SGX Nifty was giving investors a large time frame of 16 hours as compared to 6 hours of NSE.

The Indian government was concerned about this because it wanted to ensure that the NSE remained the primary market for trading the Nifty 50 index. NSE, being the largest stock exchange in India, was a symbol of India's financial prowess. The reducing power of the Nifty 50 index had the government worrying about its presence in the global financial market.

Thus the agreement between the two nations was cancelled by the Indian government in 2018. To fill the gap the ending of the agreement brought forward, SGX brought various derivatives that breached NSE's intellectual property rights.

This led to the rise of a feud between NSE and SGX, which then reached the doors of the court. To solve the matter in an amicable manner, both parties agreed to the 50:50 partnership and the transition of SGX into GIFT Nifty. As per the five-year agreement, the division of the 50:50 revenue would be based on business generated by both parties. For business generated by Singapore, 75% will be transferred to SGX and 25% to GIFT Nifty. For business generated by the International Finance Service Centre (IFSC), 75% would go to GIFT Nifty, and 25% would be transferred to SGX. After reaching the decided threshold volume, the revenue division would be 50:50 for both parties.

Areas GIFT Nifty Lacks In

Check out the price chart of SGX Nifty for the duration of June-July 2023, one month before transferring options to GIFT Nifty⬇️

Now, on comparing it with the price chart of GIFT Nifty for the duration July-August 2023⬇️

It comes as no surprise that GIFT Nifty has its limitations as compared to other platforms in the global market. One area it lacks is giving a simpler trading experience to NRI investors. At present, account opening for NRIs requires lots of documentation involving necessary documents from the embassy. They also need to open PIS (Portfolio Investment Scheme) bank accounts as well as TDS is applied for every sale transaction. The complicated procedure makes many NRI investors hesitant to invest in India and can be deduced as a reason behind lower foreign investments.

Another limitation at present is not allowing retail investors to trade in GIFT Nifty. As per Liberalised Remittance Scheme (LRS), retail investors are not allowed to trade in GIFT Nifty for the time being. As per LRS, the Reserve Bank of India does not allow the usage of that $2,50,000 per year per person for speculative purposes, including futures and options for leverage trading. 

The Bottom Line

Overall, GIFT Nifty is a much more attractive option for investors who want to trade the Nifty 50 index. It is more efficient, cost-effective, and liquid than SGX Nifty due to its proximity to the Indian market. The transition of SGX to GIFT Nifty is said to be a significant development between the financial markets of India and Singapore.

There is still room for development in the GIFT Nifty such as simplifying the cumbersome procedure of trading in Nifty 50 for NRIs. This was one thing that made SGX Nifty a more preferential platform to foreign investors as compared to NSE. Working towards these limitations would help make GIFT Nifty an even better platform for both local and international traders/investors.