India INX: Pioneering international access into India’s derivatives market

India INX: Pioneering international access into India’s derivatives market

The International Financial Services Centre (IFSC) in India was set up in Gujarat International Finance and Tech City (GIFT City) as a Special Economic Zone designated to be an International Financial Services Centre catering to banking, capital markets and insurance services.

V Bala, CEOThe IFSC offers a separate regulatory framework from the main Indian financial centres and one that is modelled on leading financial hubs such as Singapore, London and Dubai. The launch of GIFT City is one of the key initiatives of Prime Minister Narendra Modi, who also inaugurated India’s first International Exchange, India INX in January this year.

The Exchange was inaugurated on January 9 and commenced its operations on January 16. It offers trading derivatives across a range of asset class covering single stock F&O, Index derivatives, currencies and commodities.

The exchange achieved $100m average daily turnover on May 5 and was a pioneer in the S&P BSE SENSEX50 index of top 50 Indian stocks.

“It is early days for us as many products are still being launched and many more are in the pipeline,” says V Bala, managing director & CEO, India International Exchange IFSC.

“Of the initial set of products that we have launched, index, equity derivatives and commodity derivatives have gained volumes more rapidly than others.

“This also underscores the desire for traders and investors to take part in equity derivatives with India market underlying, directly in India without having to come through other global financial centres and with no currency risk.”

For international investors, India INX offers the chance to trade domestic Indian products without the restrictions of trading on the major onshore markets.

The exchange has set up an Eligible Foreign Investors programme enabling them to wire margin directly into an IFSC registered broker account and any gains directly to the investor’s home account. All quotes, margins and settlement are in US dollars.

Foreign investors registered in India as Foreign Portfolio Investors (FPIs) can directly start trading at India INX as clients with their existing setup.

The exchange offers collocation and direct market access for both EFIs and FPIs.

“With recent regulatory changes, fund houses such as MFs, AIFs and PMS at INX will now be able to invest in Indian securities listed at domestic bourses directly from IFSC without having to go through the process of registering as an FPI in India,” adds Bala.

India INX is also offering direct and clearing membership to international firms.

The India International Clearing Corporate (India ICC) is the designed clearinghouse for all India INX trades and offers two types of clearing memberships to international firms: self-clearing for firms that clear their own trades and a separate professional clearing membership for FCMs that trade and clear client positions. India INX has been designed with the international investor in mind from its regulatory framework to its trading hours, which operate for 22 hours a day encompassing both the Japanese and the US trading hours.

India INX has been designed with the international investor in mind from its regulatory framework to its trading hours, which operate for 22 hours a day encompassing both the Japanese and the US trading hours.

GIFT City is specifically demarcated as a Special Economic Zone and regulatory guidelines are being defined for IFSC on a par with other global financial centres. India INX offers a single segment membership across equity and equity derivatives, fixed income and fixed income derivatives, currency derivatives and commodity derivatives allowing participants to optimise on collateral and capital.

India INX offers a single segment membership across equity and equity derivatives, fixed income and fixed income derivatives, currency derivatives and commodity derivatives allowing participants to optimise on collateral and capital.

Tax rates are extremely competitive with no transaction tax on derivatives or securities, no income tax (for members who set up units at IFSC), no long-term capital gains tax and no dividend distribution tax (although there is a base 9% Minimum Alternate Tax that is applicable).

The cost of doing business at INX is a fraction of that in any of the leading global financial centres globally offering a distinct advantage to fund houses, traders, clearing members and other intermediaries globally. The exchange will soon launch liquidity incentives to international traders to increase their participation

The exchange will soon launch liquidity incentives to international traders to increase their participation on the exchange.

“In the near future, we plan to introduce energy derivatives and augment our currency derivatives basket,” says Bala.

“We also plan to launch listing of debt securities in multiple currencies soon. This would additionally offer investors and fund houses opportunity to invest in fixed income class of securities and would allow fund houses to offer a balanced portfolio.”

He added that the exchange also sees further opportunity in commodities, attracting mutual funds and alternative investment funds and expanding the pool of acceptable collateral at the CCP.

Contact details: bdm@indiainx.com