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Context:
- The National Stock Exchange, the Bombay Stock Exchange and the Metropolitan Stock Exchange of India decides to stop providing data feed and other support to overseas exchanges that list derivatives linked to Indian stocks and indices.
- Any existing agreement allowing data-sharing with foreign bourses, except that which is related to exchange-traded funds, will expire in six months.
Reasons for the present move:
- Offshore derivatives could be causing migration of liquidity from India, which is not in the best interest of Indian markets.
- Given that the volume of derivatives linked to Indian stocks trading in the offshore market is higher than volumes in the domestic bourses.
- Ambitious endeavors may also benefit from the crackdown on offshore derivative markets.
- In India, the securities transaction tax and the capital gains tax discourage foreign investment in financial assets.
- The proposal to extend trading hours in order to attract investors too has failed to take off.
- The present move, thus, is unlikely to rein in the vast offshore market for Indian derivatives.
Way forward:
- India’s policymakers should address the structural problems that have caused trading in Indian derivatives to move offshore.
