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More derivatives volume to shift to Singapore

NetScribes/Salil Panchal

With trading in the S&P CNX Nifty futures - called SGX S&P CNX Nifty index futures - commencing a fortnight ago at the Singapore Derivatives Trading Ltd (SGX-DT), foreign brokerage outfits are closely studying the trading interest for Nifty derivative products at offshore markets.

A recent derivatives strategy report prepared by a Hong Kong-based DSP Merrill Lynch analysts team headed by Denise Hu and Ken Chang says that some of the derivatives trading business through the Nifty index products will shift to offshore markets.

Higher liquidity and easy entry norms for mutual funds and FII brokerages at the SGX-DT may lure away foreign brokerages, high networth individuals, and large mutual funds from trading through local brokerages.

The Nifty derivatives trading at the Singapore market will provide for ideal arbitrage opportunities to investors who trade its counterparts on the Indian exchanges.

Two key issues will make the Nifty product a popular trading instrument overseas.

First, the S&P CNX Nifty, which comprises 50 stocks, represents around 48 per cent of the total market capitalisation of the stocks listed at the two top Indian bourses. Software and consumer products are the largest sectors in the S&P CNX Nifty, with a combined weightage of of 48.4 per cent in the index.

Second, the S&P CNX Nifty has 41 common constituents with the Morgan Stanley Composite India index. The MSCI comprises 71 stocks with a combined market cap of $ 85.7 billion. The 41 common stocks constitute 90.5 per cent of the S&P CNX Nifty, while they represent 55.11 per cent of the MSCI India.

In India, derivatives trading volumes have been steady at best over the past two months. On October 11, the S&P CNX Nifty futures market witnessed an opening of 1,230 and a close of 1,219. Thirteen contracts were struck for November, which totted up a value of Rs 3,182,000.

As of Wednesday, the number of open interest positions stood at 97. While the volume traded obviously denotes the liquidity, open interest indicates the depth of the market too. Open interest is the sum total of all long positions (which would always be equal to sum total of all short positions). The higher the open interest, the higher the depth in the market.

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