MSCI Inc., a leading provider of research-based indexes and analytics, has announced that it is closely monitoring developments related to the concerted announcement by three Indian stock exchanges of the imposition of anti-competitive measures restricting the accessibility of the Indian equity market.
Earlier this month, the Bombay Stock Exchange, or BSE, the National Stock Exchange, or NSE, and Metropolitan Stock Exchange decided to end all licensing agreements with all foreign exchanges. In other words, they will stop licensing products and data to foreign exchanges to prevent trading from migrating abroad.
As a post by Reuters noted, this decision will leave foreign investors with two options; give up exposure to this emerging market, or force them to migrate their trading onshore to India.
Foreign markets offer dollar-based derivative contracts based on Indian indexes, shares and other securities under licensing agreements with Indian exchanges. This permits overseas investors to gain exposure to India without having to trade onshore. For instance, NSE has a contract with Singapore Exchange that allows futures and options on the Nifty to trade in Singapore. In fact, the SGX Nifty 50 index futures is amongst the most popular of such contracts.
Washington-based Futures Industry Association expressed their displeasure over this move.
Meanwhile, MSCI is evaluating the measures’ potential impact on existing financial products and the future accessibility of the Indian equity market for international institutional investors more generally.
They view it as a negative development for the accessibility of the Indian equity market for international institutional investors.
An extract from the press release is reproduced below.
The restriction would apply to all derivatives that are traded or settled on a non-Indian exchange or trading platform, whether they were issued by an exchange or by some other party.
The announcement also refers to the imposition of a written pre-approval restriction on the issuance of certain ETFs and ETNs or similar products based on indexes, but the full scope of the restriction is not yet clear.
The changes will be disruptive and harmful to international institutional investors in Indian equities whether accessing the market onshore or offshore.
Under MSCI’s Market Classification Framework, anti-competitive measures restricting investors' access to derived stock exchange information receive a negative score in the Competitive Landscape category. This is because of their negative impact on international institutional investors as the range of available financial instruments may be significantly reduced, limiting ways for cross-border investors to access a local market or to hedge an exposure to a local market.
The introduction of restrictive measures that may result in a material deterioration of the accessibility of an equity market is reviewed carefully by MSCI in consultation with international institutional investors and other market participants and could lead to a change in market classification.
