SGX to Drop Single Stock Futures Linked to Indian Equities Amid Regulatory Scrutiny

SGX to Drop Single Stock Futures Linked to Indian Equities Amid Regulatory Scrutiny​

The Singapore Stock Exchange (SGX) has announced plans to discontinue the offering of single stock futures tied to various Indian equities starting in October. This move signals a shift in how international investors access exposure to the movement of individual stocks listed on Indian exchanges through the SGX platform.

This decision comes after months of discussions, reportedly following questions raised by Indian authorities regarding the use of local exchange prices for derivatives contracts traded on SGX. The withdrawal marks a potentially significant change for foreign participants interested in concentrated stock movements in India.

Context of Single Stock Futures Trading on SGX​

Till 2023, SGX offered futures contracts that tracked specific Indian stocks, providing international investors with a window into the daily volatility and performance of key equities. These single stock derivative contracts were distinct from the broader indices-linked products.

While volumes surged in the offerings covering individual stocks, similar to the success of SGX Nifty—a contract tracking the Nifty 50 index—the growth witnessed in these single stock futures was not commensurate. Unlike the widely tracked index, single stock derivatives captured niche investor interest.

Regulatory Scrutiny and Industry Perspective​

Sources familiar with the matter suggest that the Securities & Exchange Board of India (SEBI) had expressed reservations regarding the use of these Indian equity-linked single stock futures on SGX. This regulatory review led to the current development after several months of deliberation.

The chief executive officer of a large domestic fund suggested that Singapore may have also reviewed the legal position concerning derivatives linked to foreign stocks traded on local platforms before opting to withdraw its offerings. SEBI and SGX did not comment publicly in response to queries regarding this transition.

Impact on Foreign Investors and Market Realignment​

Foreign investors who currently use SGX for Indian stock futures will need to adjust their investment strategies depending on the final agreements reached by both markets and regulators. Rajesh Gandhi, a partner at Deloitte India, advised that a framework must be established before foreign investors can fully realign their exposure.

If a 'stock connect' functionality is not permitted, international participants would face two primary options for Indian stock exposure. They must either secure an FPI license and trade directly on the National Stock Exchange (NSE) or Bombay Stock Exchange (BSE).

Future Channels for Derivatives Trading​

Trading single stocks via Singapore will cease, but there remain specialized avenues for foreign investors to gain exposure through GIFT City. If volumes migrate from SGX, these contracts are likely to be structured similarly to GIFT Nifty—meaning they will be denominated and settled in US dollars.

Under the Eligible Foreign Investor (EFI) route on the GIFT exchange, gains from trading are tax exempt. However, those wishing to invest directly in listed stocks in GIFT City cannot trade derivatives like GIFT Nifty under the Reserve Bank of India's liberalised remittance scheme (LRS).