Financial technology is evolving rapidly, with new technologies like blockchain, and to remain “up to date” and “flexible” National Stock Exchange, the country's largest bourse has inked an agreement with Nasdaq to bring the latter's clearing, risk management and settlement system for post-trade capabilities.
The current clearing and settlement system at NSE is based on indigenous technology and operated by wholly-owned subsidiary National Securities Clearing Corporation Ltd. This will be replaced by a post-trade technology from Nasdaq.
NSE exchange is expected to launch commodities trading later this year. The new technology utilising the Nasdaq Financial Framework will enable all asset classes to be cleared and settled in one system.
The new system, which will be implemented over the next two to three years, will increase efficiency and effectiveness of the market, supported by a modern, flexible technology that reduces risks in the post-trade area alongside international best practices and standards.
“All our systems have been developed in-house and they have been in place for a long period of time. We have to move on, we have to build in some of the capabilities, we need to be future ready, including the adoption of emerging technologies such as blockchain. We need flexibility to be able to do that. So, we thought it is a good time to upgrade our clearing and settlement system. Likewise, we are upgrading the surveillance system as well. We are investing in technology systems across the board,” said Vikram Limaye, MD and CEO of NSE.
The financial terms and conditions of the agreement were not disclosed. Nasdaq already provides technology to other exchanges and clearing houses around the world. The system that will be provided to NSE will be customised to the exchange's requirements.
“Nasdaq is a technology company and has had a long presence across Asia powering many of the region's leading and diverse markets. This new relationship extends our footing further into south Asia and carries us with one of the world's largest exchanges. We do have several clearing houses and CSDs (Central Securities Depositories) that use our technology across the world. We can work together and ensure that we bring all of that technology and understanding to India,” said Adena Friedman, president and CEO of Nasdaq.
NSE's information technology arm, NSE IT, will also be involved in implementation of this technology in-house and it will also work with Nasdaq on some of their implementations outside India.
Beyond the technology that Nasdaq will give NSE, the two exchanges have signed a memorandum of understanding (MoU) to explore business opportunities across listings, corporate and market services and data and innovations in products, processes and technology.
“We have four listings from India (companies listed in the US on Nasdaq exchange). We would love to see if there is a way for us to do a listing programme that brings more liquidity here to India, but also makes the US markets more appealing for Indian companies,” said Friedman.
The two exchanges are also keen to work with the regulator on dual listing of companies.
“There is a real opportunity to try and figure whether there is a framework within which you could do dual listings, where you provide a company an opportunity to list here and offshore in the US on Nasdaq and you tap in to the investor base both domestically and globally. That requires discussion with regulators. SEBI has formulated a committed couple of weeks, to look at listings both ways. Over the next 12-24 months, this landscape will evolve and there will be opportunities to focus on dual listings,” said Limaye.
At present, Indian companies who want to list abroad, can do so via issuing American Depository Receipts or Global Depository Receipts. On the other hand, overseas companies looking to trade in India, can only do it by floating Indian Depository Receipts.
Securities and Exchange Board of India last month formed a committee to examine where direct overseas listing of Indian companies was possible.
The regulator had said that it would be worthwhile to consider facilitation of of companies incorporated in India to directly list their equity shares abroad and vice versa, considering the internationalisation of capital markets.