NSE chief executive discusses India's key role in global derivatives markets

National Stock Exchange of India CEO Ashish Chauhan points to the benefits of a high-tech society at scale

2 December 2022


When it comes to the future of Asia derivatives markets, many people naturally think of China as the engine of innovation and growth. However, the leader of the National Stock Exchange of India notes that when it comes to technology and sheer people power, there's no market quite like India.

At the FIA Asia Derivatives Conference in Singapore, NSE's CEO Ashish Chauhan shared several jaw-dropping statistics with attendees via a fireside chat on 1 December. Just a few data points include the fact that India recently added 400 million bank accounts in a single year, that per-capita data usage on mobile phones is twice that of any other nation in the world, and that India has more than double the digital payment volume of China.

"India over the last decade or so has just kind of leapfrogged from the 19th century to the 21st century in terms of digital payments and soft infrastructure," Chauhan said. He noted that these soft, technology-based systems are not as visible to market participants as hard infrastructure like skyscrapers or high-speed trains, but are perhaps even more important to the nation's financial system.

What's more, this high-tech revolution in capital markets is still in its early days, he said. 

For instance, the median age in India is currently 28 years old, compared with about 38 years in both the US and China at present and about 44 across the EU. India is a young country that is technologically savvy, he said, with demographics "similar to China in 1987."

Outlook for India and APAC

Chauhan was a member of the core team that founded the NSE, and was responsible for setting up its equities and derivatives markets across the 1990s. He has worked for the last 10 years as CEO of the Bombay Stock Exchange and took the reins as CEO of NSE earlier this year.

Thanks to a large cohort of retail investors, NSE is by far the biggest derivatives exchange as measured by volume. FIA data shows that across the first 10 months of 2022, the India exchange recorded total volumes of 29.76 billion contracts – more than four times the number 2 exchange, Brazil's B3.

"NSE has become the largest exchange of any type in the world," he said. "For me, that's largely because of the derivatives like futures, options and indexes."

Chauhan noted that while the retail market in India is big, there is still room for future growth. He cited the fact that India's population is roughly 1.4 billion people, but there are less than 70 million unique accounts for individual investors – a number that has more than tripled from just three years ago.

"We have a long way to go and have just scratched the surface," he said.

Chauhan said that this large population of retail investors has informed the regulatory environment for derivatives markets in India, with a priority placed on customer protection and financial integrity. He noted several conversations recently where some international market participants asked him why margin requirements in India can sometimes be so high.

It is to protect the unique nature of India's financial system and its end-users, Chauhan said, and ultimately that is good for all market participants – regardless of their size.

"It's true that India is a high trading market, but it's also a highly risk-managed market," Chauhan said.

The profits might be a bit smaller due to regulatory red tape that's sometimes created by a focus on protecting retail traders, Chauhan conceded, but he said the incredible scale of the opportunity in India more than makes up for it.

"Effectively the exchanges, the depositories and the clearinghouses are the fulcrum on which any of this works," Chauhan said.

When questioned about whether the huge population of retail traders will persist in the long term, Chauhan didn't have any doubts. He stressed that India is a "bottom-up country," where "everyone thinks for themselves." The massive population coupled with this individualistic approach to derivatives markets is sure to provide continued growth in the years to come, he said.

New products and operational efficiencies

As for what the future holds, Chauhan mentioned that NSE is working with regulators to launch a comprehensive government and corporate bond index futures complex.

"Regulators really want these things to be on transparent markets" via major exchanges, rather than trading OTC, he said.

He also noted that India's push towards a T+1 settlement cycle puts the region ahead of other international counterparts and proves the high-tech, can-do attitude of the region.

"For years everyone has talked about T+1, but nobody does it," Chauhan said. He even noted that when India took a serious look at shortening the settlement cycle, he heard from market participants in the US and Europe who were intimidated by the plan.

India's first tranche of T+1 settlement mandates for smaller companies – ones where "foreigners don't have too much stake," he added – will finish in January. He noted that this has helped the financial ecosystem "fine-tune their operations strategy" with market participants and custodians to support a broader rollout of T+1 as the global standard.

"We have been pioneers and we have been kind of leading the world in terms of operational efficiencies, and I think T+1 is a prime example of that," Chauhan said.

Chauhan also noted that the continued evolution of GIFT City, a business district that offers offshore-like rules even though it is located onshore about 500 kilometers north of Mumbai, will provide growth and opportunity through connectivity between India and the rest of the world.

As proof of the continued interest in offering internationalized connectivity, Chauhan pointed to the recent announcement by the Singapore Exchange and NSE to launch full-scale operation of their international financial center, NSE IFSC-SGX Connect, by the end of the second quarter of 2023 with dollar-denominated Nifty contracts to be exclusively traded on the NSE.

This kind of move is "just the beginning," Chauhan said, as APAC continues to pursue cross-connect arrangements to take full advantage of the potential in global derivatives markets.

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