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Singapore Exchange shares fall most in nine years after end of India licensing pact

Bloomberg

Singapore Exchange Ltd. stock fell the most since November 2008 in early trading Monday as investors reacted to the National Stock Exchange of India Ltd.’s move to end its licensing pact with the Lion City bourse.

NSE, together with other Indian markets, said on Friday night that they would end all licensing agreements with their foreign counterparts, and stop offering live prices to overseas venues. The steps would make it impossible for SGX to keep offering derivatives based on India’s benchmark Nifty 50, among its flagship products.

Singapore has become a hub of offshore trading for many markets. The significance of India’s move was highlight by several analyst notes published after India’s announcement, with at least three banks cutting their rating on the exchange operator’s stock. The company’s shares fell as much as 8.8 percent in early trading, and saw the biggest decline on the benchmark Straits Times Index.

“NSE’s decision could result in at least a 4 percent cut to SGX’s total revenue,” said Sharnie Wong, a Bloomberg Intelligence senior industry analyst. SGX’s Nifty-related products accounted for about 10 percent of its total derivatives revenue in its first half, based on BI’s estimate.

Offshore hub

India’s move came after SGX launched single-stock India futures on Feb. 5. NSE officials had sought a delay of those products, people familiar with the matter said last month.

“Probably as individual stock futures were being introduced on SGX, the Indian side became paranoid and hence this knee-jerk reaction,” said A.S. Thiyaga Rajan, a senior managing director at Aquarius Investment Advisors Pte in Singapore.

The weekend’s developments won’t impact the Indian single-stock futures, which aren’t based on licensed market data from the Indian exchanges, DBS Group Research analyst Sue Lin Lim wrote in a note, citing SGX. The exchange declined to comment.

SGX shares were down 7 percent at 9:49 a.m. local time, trading at 7.34 Singapore dollars each.

Among the offshore derivatives that trade in Singapore is one of the few overseas products tracking Chinese-listed stocks, the FTSE China A50 futures, as well as contracts linked to Japan’s Nikkei 225. SGX also hosts derivatives for stocks listed in Indonesia, Taiwan and Thailand.

SGX sought to defuse the tensions with India in a statement on Sunday where it said that it will work with NSE “toward solutions for global investors,” and noted that the two companies’ partnership goes back to 2000 and that they had collaborated “to develop and internationalize India’s capital markets.”

NSE’s move wouldn’t have a material impact on its “immediate” financial results, SGX also said.

Business interest

India’s exchanges have decided it’s in their “business interest” to stop offshore trading of products linked to their indexes to ensure that liquidity stays in the country, Ajay Tyagi, chairman of the Securities and Exchange Board of India, told reporters on Saturday. Suspending agreements and cutting off data feeds shouldn’t be seen as a “retrograde step,” he said.

Vikram Limaye, chief executive officer of NSE, India’s biggest bourse, defended the motives behind Friday’s announcement.

“We are not being protectionist,” he said in a phone interview. “We are doing what is good for Indian markets — and fragmenting liquidity is not.”

SGX and NSE signed a licensing agreement in March 2000 that allows futures and options based on the Nifty 50 Index to trade in Singapore. The Singapore bourse said in Sunday’s statement that it plans to develop “India-access risk management solutions.”

SGX isn’t the only overseas exchange affected by Friday’s move. NSE will also end its licensing arrangements with CME Group Inc., the Taiwan Futures Exchange and Osaka Securities Exchange, CEO Limaye said.

“This may affect our revenues, but this is the right thing to do,” he said.