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Domestic stock exchanges halting trading of Indian derivatives on foreign bourses will do little to improve their liquidity

The news of the closure of offshore trading of Nifty index futures is a backward step in the backdrop of India’s continued claim of being an open economy. National Stock Exchange (NSE) along with Bombay Stock Exchange (BSE) and Metropolitan Stock Exchange announced on February 9, its decision to terminate its commercial licensing arrangement with its foreign peers, under which it shared data relating to dollar-denominated index futures linked to Nifty 50 (and other thematic indexes), S&P BSE Sensex, select stocks and Nifty 50 options.

Previously, the derivatives benchmarked to Nifty indices would trade on the Singapore Stock Exchange (SGX), Dubai Exchange, Chicago Mercantile Exchange, the Osaka Exchange and the Taiwan Futures Exchange. The exchanges have been given six months notice (till August 2018) to wind up their business. BSE, which had arrangements to share data with BRICS Exchanges Alliance, Hong Kong, South Africa, Eurex and Dubai exchange, will also terminate them.

Terms like ‘protectionism! regressive!’ have been recurring in the discourse surrounding NSE in the aftermath of this decision. NSE has stood its ground and has disparaged the claims of naysayers. CEO Vikram Limaye says, “The move is not anti-competitive in any way, because these are licensing arrangements in commercial contracts and from that perspective nobody is compelled to share their IP if they do not want to. It is in fact quite common to find other exchanges, not sharing prices and data relating to the core contracts, if liquidity is going to get fragmented and built offshore

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