‘NSE IFSC-SGX Connect’

The National Stock Exchange (NSE) and the Singapore Exchange (SGX) have entered into a formal agreement to cement the key terms for operationalising the ‘NSE IFSC-SGX Connect’, which will bring international and Gujarat International Finance Tec-City (GIFT) participants together to create a bigger liquidity pool for Nifty products in GIFT City.

Indian Financial System Code (IFSC)

• IFSC is a jurisdiction that provides financial services to resident and non-resident Indians in foreign currencies.
• GIFT IFSC will be a deemed foreign territory dealing in foreign currency.
• The units in IFSC will be recognised as non-resident entity under the FEMA regulations of Reserve Bank of India.
• Gujarat International Finance Tec-City Co. Ltd (GIFT) is being developed as the country’s first international financial services centre (IFSC).

What are the services an IFSC can provide?

• Fund-raising services for individuals, corporations and governments
• Asset management and global portfolio diversification undertaken by pension funds, insurance companies and mutual funds
• Wealth management
• Global tax management and cross-border tax liability optimization, which provides a business opportunity for financial intermediaries, accountants and law firms.
• Global and regional corporate treasury management operations that involve fund-raising, liquidity investment and management and asset-liability matching
• Risk management operations such as insurance and reinsurance
• Merger and acquisition activities among trans-national corporations

Background

• The two exchanges (NSE and SGX) have been locked in a dispute for the past couple of years after India's three main bourses unexpectedly announced in February 2018 that they would stop licensing their indexes to foreign bourses from August that year.
• NSE's Nifty futures and options, which are traded in the island nation, are popular with foreign investors who are not keen on trading in India.
• An Indian court that year referred the dispute to an arbitrator. The two parties have now reached an agreement for operationalising the NSE IFSC-SGX Connect and thereby withdraw the arbitration proceedings.

Significance of the development

• Strengthening of the system: The Connect will broaden the international and domestic participant base and further strengthen the capital market ecosystem in GIFT city resulting in more broad based development across asset classes and capital raising activity.
• Ease of access to international investors: The integration of GIFT City ecosystem with the international financial markets would lead to development of vibrant and liquid markets for India access products at GIFT City with the ease of access to international investors.