The Relative Volatility and Price Action of NSE Nifty and SGX Nifty

This is a good article written by a friend last year comparing between the National Stock Exchange of India’s NIFTY contract and SGX’s NIFTY futures.

Some of the regulatory information may be outdated and I cannot vouch for the accuracy of data but the rest of the content remain relevant and worthy of an educational read particularly for those interested in NIFTY  futures.

Reproduced with the permission of Robin Hood of Nottingham.


The National Stock Exchange of India (NSE) was incorporated in 1992 as an electronic exchange and is amongst India’s premier stock exchanges.  The exchange’s flagship is the CNX Nifty 50 Index which is a free float market capitalization index, consisting of 50 large diversified companies, representing 24 sectors of the Indian economy, giving domestic and international investors exposure to the Indian equities market. On the 12th of June 2000 the NSE introduced a future on the Nifty 50 and the SGX launched a comparable future three months later in September.

NSE Nifty Contract Characteristics

The NSE Nifty futures underlying is the Nifty Index. This has a contract size of 50 Indian Rupee (INR) multiplied by the index, value of 1 point is INR 50 and tick size is 0.05, thus its contract value is INR 311,070 (last price 6,221.40). Its trading hours are 11.45-18.00 (Singapore time) and is cash settled on the last Thursday of the expiry month. Final settlement price is the official closing of the CNX Nifty Index rounded to two decimal places (if it’s a public holiday, then it will expire on the previous trading day). There are three months available to trade, the near, the next and the far month, so today the Dec13, Jan14 and Feb14 contracts are available. Initial margin requirement is 22,002 INR and the daily settlement is the last 30 minutes weighted average price.

SGX Nifty Contract Characteristics

The Singapore Exchange (SGX) Nifty futures underlying is also the Nifty Index. It has a contract size of 2 USD multiplied by the index, value of 1 point is 2 USD and tick size is 0.5, so its contract value is USD 12,419 (last price 6,209.5). The trading hours are 09.00-18.15 for the “T” session and 19.15-02.00 for the T+1 session (Singapore time). It is cash settled on the last Thursday of the expiry month. Final settlement price is official closing of the CNX Nifty Index rounded to two decimal places, (again, if it’s a public holiday then it will expire on the previous trading day). There are four quarterly months available to trade (Mar, Jun, Sep, Dec) and 2 serial months, so today the Dec13, Jan14, Feb14, Mar14, Jun14, Sep14, are available. Initial margin requirement is 605 USD and the daily settlement is not disclosed by the exchange.

NSE or SGX Nifty? (on / offshore)

Firstly we need to look at the onshore characteristics of the Indian market as this will go a long way to explain why the SGX Nifty was created and has gained in popularity. India shares similarities with China towards its view to Foreign Investors access to the domestic markets.

In China there is a Qualified Foreign Institutional Investor programme, launched in 2002 by the government which allows accredited investors access to the domestic market, loosening capital controls to foreigners. In India authorities also restrict onshore access by foreigners and have capital controls, foreigners need to be qualified Foreign Institutional Investor (FII) approved by the Securities and Exchange Board of India (SEBI). The FII scheme was introduced in September 1992 allowing access to the domestic capital markets, FII being defined as an institution established or incorporated outside India which proposes to make investments into India in securities. FII need to fall into eligibility criteria and need to take into account various factors such as track record, competence, foreign registration, and fit and proper tests.

There are moves to change the FII to a Foreign Portfolio investors (FPI) scheme to harmonize access to foreigners in the second quarter of 2014 in an attempt to unify stringent requirements such as the registration process*. However the new scheme has hit hurdles as FII are unwilling to move to the new framework, as they await tax clarifications. In addition the General Anti-Avoidance Rule (GAAR) provisions were set to come into force, these have been delayed till April 2015 as grievances have arisen from its implementation. The delay in launching the programme and ambiguous tax implication is a frequent complaint against the Indian authorities and was highlighted in October 2007 when there was a ban on Participatory notes (P-notes).
*note that the FPI scheme was launched in May

FII were banned from issuing to overseas investors, the guidelines were unclear and led to an adverse market reaction with the markets opening around 9% down on the announcement. The markets were suspended for an hour and the Finance Minister delivered clarification when they re-opened. They then staged a comeback ending the day lower, but were followed the next day with another fall. It was not until a week later that with further clarification of the P-Note rule, the stock market recovered.


Comparing the two contract specifications it is clear that there are a few (but important) differences in the characteristics of the contracts, the most striking is that of the underlying currency. The NSE Nifty is INR denominated and the SGX Nifty USD denominated. The trading hours differ with SGX Nifty trading for sixteen hours a day in a T, plus a T+1 trading session and NSE Nifty trading for six hours and fifteen minutes. There is also the difference between the number of monthly contracts available to trade at any one time, three on the NSE opposed to six on the SGX.  The similarities are striking, but unlike the ease of say the SGX Nikkei versus the Osaka Nikkei futures for speculating, hedging and arbitraging the overriding difference of the SGX Nifty versus the NSE Nifty is that they are denominated in different currencies. We shall now explore the rationale of market participants on deciding whether they trade the NSE or the SGX Nifty contract and the effects of these on price determination.

Singapore prides itself for the ease of doing business and has a clear and respected regulatory and low tax framework. The SGX has lower exchange clearing fees with no transaction and capital taxes, interest is also payable on margin. FII have found loopholes trading into India via Mauritius, but the Securities and transaction tax as well as capital gains tax acts as a deterrent to trade on the NSE. In addition the SGX Nifty offers product margin offsets. NSE Nifty options open interest is hugely superior then on the SGX, despite having three market makers signed up. In addition the SGX Nifty is Commodity Futures Trading Commission (CFTC) approved in the USA.

As stated, the SGX Nifty is denominated in USD, INR exposure can be “hedged” offshore via the non-deliverable forward market and there are now USD/INR futures listed on the Singapore Exchange and Dubai Gold and Commodities Exchange. For arbitragers the SGX / NSE arbitrage is not as straight forward say as the SGX Nikkei / Osaka Nikkei as the SGX Nifty is a Quanto future (ie the underlying is denominated in INR), thus there are more factors involved as to why prices trade with a greater deviation from the Nikkei (SGX Nikkei / Osaka Nikkei correlation for the last year 99.3% Source; Bloomberg). A caveat for arbitrageurs is the currency exposure, 1 million USD of notional is currently 81 lots of SGX Nifty and 200 lots of NSE Nifty, if spot USD/INR moves considerably, one is left with a Delta position. The SGX is characterized with Financial Institutions as the main participants, Indian retail participation has decreased significantly from a staggering 84% in 2003 to 34% in 2013 (as a percentage of turnover), whilst FII yearly flows has grown 61% in the same period. (Source : Economic Times & ESIB Research).


The financial markets have become increasingly more global. Mostly, gone are the days where contracts traded for the regular trading session, then remain closed until the next trading day. American and Global Deposit receipts trade, same company stocks trade on different bourses (such as 5 HK, HSBC US and HSBC LN) and now many Asian bourses have (some would say, finally) introduced T+1 trading (Hong Kong and Korean Futures exchange) which have increased exposure to the global trading community. SGX is tradeable 16 hours a day, and is open when the U.S markets opens, big swings after say non-farm payrolls can be acted on by traders on Friday evening, without having to wait till Monday to react, the correlation of global equity markets has increased over time.

Price Analysis

Yearly correlation between the NSE and SGX Nifty is currently at 98.6% (Table A below), not surprising given that price can be arbitraged. Using figures obtained from Bloomberg for the last 250 trading days (Table B below), the following was observed.

The average daily volume for SGX is 43,818 compared to NSE is 250,881, so SGX is only 14.9% of the combined trading volume, however percentage as value of turnover (USD) is a respectable 29.1%. Price change differences are very similar, not surprising as it would be arbitraged, daily price volatility is also similar.

In relation to Open Interest SGX had a daily average of 279,160 (USD Value 3.3 billion USD) against NSE 333,903 (1.6 bio USD). In October 2012 the SGX was 59.8% (Source: Edelweiss) of the total combined volume and over the last 250 trading days, this figure has grown to a staggering 67.5%. Out of the data there were ninety four days in which the SGX settled at a higher price than the NSE.

Table A

sgx nifty correlationSource : Bloomberg

 SGx nifty volume


The onshore political arena has undoubtedly contributed to the recent gains in the growth of prominence in the SGX contract. The complicated legal and tax framework uncertainty and the complications and cumbersome FII application process has allowed the SGX to flourish and gain market importance.

May 2014 may prove pivotal for the future of the Indian financial market as the country goes to the polls. The resurgent Bharatiya Janata Party (BJP) challenging party looks set to become the largest party ahead of the ruling Congress led United Progressive Alliance (UPA) and recently they won four out of five state elections with a high turnout. They may however fall short of a majority, making forming a Government difficult (hung parliament).  A BJP election win is seen as a more progressive and investor friendly party then the current ruling party.

The country has seen falling consumption growth, a weak currency, rising inflation (two repo rate rises since September 2103), political uncertainty and corruption. Powerhouses Goldman Sachs (and CLSA echoing the sentiment) in a recent report announced that investment prospects in India were positive if a coalition came into power led by the BJP, which could fuel investment demand especially in infrastructure. A stable, clear, positive and forward thinking party is what the financial system needs and wants, as it tries to woo the international community, it needs to instill confidence back into the domestic political and financial arena.

At the start of the year PricewaterhouseCoopers (PwC) released an update on the GAAR rules which will be introduced in April 2015, only time will tell (after the upcoming elections) if this legislation will be implemented, changed or watered down, if India were to see a new Government regime. This and numerous other factors will be chief determinants of whether we continue to see the growth of the SGX Nifty at the expense of its onshore counterpart.