SGX Nifty Is Tracked By Many For Multiple Reasons

Recently, there was a news that SGX is splitting the contract value of Nifty futures. This was actually a breaking news that, if happens, is going to affect the overall scenario because the current multiplier in terms of the contract is around USD 10, which is now going to be down to USD 2 whereas the maximum position restriction will be at 25,000 contracts as against 5,000. Essentially, if you buy a contract in India, the lot size is 50%. The cost to buy one contract is Rs 2.9 lakh or USD 7,406. Whereas in SGX, it is about USD 11,600, which makes a difference in contract value of about USD 4,194. Earlier SGX - Nifty lot size was 10, so cost to buy one contract was USD 58,000. Singapore has treaties with a lot of countries which means that the existing sub accounts cannot unwind within 18 months. Therefore, a cut in the face value could be to attract the PN holders who cannot have a similar exposure. This is providing a window of opportunity since Singapore has a double tax treaty with other countries.

For the past few days and weeks, an important indicator of how we open up trade has been the SGX Index and how things are shaping up there. Since September 2007 up to March 2008, the increase in the value of the domestic futures, the value of the index futures in the domestic market has been around 1.5 times. SGX Nifty, in September the total open interest value, which was around Rs 1,500 crore in September 2007 increased to around Rs 4,000 crore in October 2007 and now in March 2008 stands at around Rs 7,800 crore. That means a significant five-tenths increase since September 2007. It also has been backed by a good increase in volumes, which has increased around 5 times. The number of shares that were traded on the SGX Nifty was around 1.8 lakh in September ’07 compared with March ’08, which is around 10 lakh shares.

The Singapore Exchange has been increasingly taking some action wherein they can decrease the lot size. If you just go back and understand one thing that earlier the SGX Nifty’s lot size was around 10 and now they have decreased it to 2. That means the cost of buying one lot on the SGX Nifty was around USD 47,000, has reduced to around USD 9,400. So, they are taking steps to decrease the cost and there is a gradual shift happening on the Singapore exchange. That is why this is an important indicator that is tracked on a daily basis.

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