Mumbai: The National Stock Exchange of India (NSE) said on Friday it has become the first Indian stock exchange to be recognized by the US Commodity Futures Trading Commission (CFTC).
NSE got a part 30 exemption, which will enable members of the exchange to trade in derivatives for US clients. The exemption would allow US customers increased access to Indian futures markets.
“The order issued to NSE permits its members to accept US customer funds directly for the purpose of trading in futures and options contracts on NSE without the members having to register with the CFTC as a futures commission merchant,” NSE said in a press statement.
Currently, US-based foreign investors can freely invest only in India’s broad-based indices Nifty 50 and Sensex, as these were the only ones recognised by the CFTC.
“The CFTC currently recognizes only two Indian products — Nifty 50 and Sensex. This rendered direct participation or trading in single stock futures by US funds not possible. So many foreign portfolio investors over the years used to either trade through offshore exchanges or had created structures via jurisdiction such as Mauritius or Singapore,” said Suresh Swamy, partner, PwC India.
US-based funds are those that have more than 51% US residents as investors. Indian exchanges had been working on a solution.
The exemption from CFTC will now enable Indian intermediaries to sell Indian products, including options and futures, to US investors.
The Indian bouquet of products has both futures and options, which currently come under two different regulatory bodies—CFTC and the US Securities and Exchange Commission, respectively.
The exemption was essential for Indian exchanges, particularly NSE, which had been trying to consolidate liquidity.
The Indian exchanges had, on 9 February, decided to bar overseas exchanges from trading in Indian derivatives in an attempt to check migration of trades away from Indian exchanges.
Two months later, on 11 April, the Singapore Exchange Ltd (SGX) announced a new product that works just like the Nifty, bypassing the Indian exchanges. SGX’s new products based on India’s Nifty are approved by CFTC and thus could have scored above India offerings.