SGX had been the main overseas provider of Indian equity derivatives prior to a falling out in 2018 © Bloomberg

The stock exchanges of Singapore and India have ended a long-running battle over derivatives and agreed to launch a trading link across the two markets, marking a substantial improvement in relations between the Asian bourses.

Singapore Exchange said it had agreed with the National Stock Exchange of India to push ahead with a market connect platform, and that both sides would withdraw from arbitration proceedings over the trading of Indian equity derivatives in the south-east Asian city-state.

SGX had been the main overseas provider of derivatives for India stocks prior to the bourses falling out in 2018, when Indian exchanges announced they would stop supplying data to foreign index providers.

At the time, Indian bourses including NSE said the popularity of derivatives in Singapore that are used to hedge exposure to the south Asian country’s equities had resulted “in migration of liquidity from India, which is not in the best interests of Indian markets”.

SGX and NSE said on Wednesday that they had received regulatory approvals for a proposed scheme to allow trading of SGX’s NSE Nifty 50 index futures and options from Gift, a financial centre in the Indian state of Gujarat. The exchanges did not provide a launch date for the platform.

Loh Boon Chye, SGX chief executive, said the link between Singaporean and Indian markets would “facilitate unfettered access for global market participants, and in turn enhance investments and capital market flows between India and the world”.

The move to strengthen ties with NSE comes as SGX faces pressure to compete with Hong Kong.

Hong Kong Exchanges and Clearing, which operates the city’s stock market, in May snatched SGX’s derivatives licensing agreements with index provider MSCI. The Hong Kong bourse also plans to offer trading of futures contracts for Chinese onshore shares similar to those already offered in Singapore.

Hong Kong will soon play host to part of the initial public offering of Chinese payments platform Ant Group — set to be one of the world’s largest ever equity raisings.

“With this agreement sorted out it could be a positive point for Singapore and could definitely mitigate our current losses in terms of competitiveness to [Hong Kong],” said Kelvin Wong, a market analyst at CMC.

But Gabriel Sacks, a Singapore-based investment director at Aberdeen Standard Investments, said the announcement would not move the needle for SGX. “It mostly removes an overhang on a small percentage of SGX’s revenue.”

The broader impact on SGX’s earnings is unclear. “There are no details of the terms of the agreement yet, such as how the revenue will be shared between SGX and NSE,” he said.

Singapore’s exchange is seeking to build a more balanced platform after years of delistings and low trading volumes have squeezed its core equity listings business.

As part of its diversification efforts, SGX has launched a derivatives platform with FTSE International tracking Taiwan’s stock market and plans to expand its presence in global foreign exchange.

In July SGX acquired the remaining 80 per cent stake in BidFX, a trading venue used by hedge funds and banks, for $128m.

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