SEBI opens exchange traded commodity derivatives market to FPIs

The Securities and Exchange Board of India (SEBI) on Wednesday approved the participation of foreign portfolio investors (FPIs) in exchange traded commodity derivatives (ETCDs).

The existing eligible foreign entity route, which required actual exposure to Indian physical commodities, has been discontinued, SEBI announced after its board meeting today.

Any foreign investor looking to participate in Indian exchange traded commodity derivatives, with or without actual exposure to Indian physical commodities, can do so through the FPI route, says the market regulator.

"FPIs will be allowed to trade in all non-agricultural commodity derivatives and select non-agricultural benchmark indices. To begin with, FPIs will be allowed only in cash-settled contracts," SEBI says.

The market watchdog, however, adds that FPIs will be allowed to participate in Indian exchange traded commodity derivatives subject to certain risk management measures.

"The position limits for FPIs (other than individuals, family offices and corporate bodies) will be on par with those presently applicable for mutual fund schemes i.e. as a client," SEBI says.

FPIs belonging to categories viz. Individuals, family offices and corporates will be allowed position limit of 20% of the client level position limit in a particular commodity derivatives contract, similar to the position limits prescribed for currency derivatives.

A working group comprising representatives from SEBI and market participants has also been constituted to review whether any additional risk management measures are required to be prescribed for FPIs.

The participation of FPIs in exchange traded commodity derivatives is expected to enhance liquidity and market depth as well as promote efficient price discovery, SEBI says.

SEBI has already allowed institutional investors such as Category III AIFs, portfolio management services and mutual funds to participate in exchange traded commodity derivatives.