SEBI Allows FPIs To Trade In Exchange-Traded Commodity Derivatives

The market regulator has allowed foreign portfolio investors to trade in exchange-traded commodity derivatives.

The regulator discontinued the existing eligible foreign entity route, which required actual exposure to Indian physical commodities, according to a statement by the board of Securities Exchange Board of India.

Any foreign investor desirous of participating in Indian exchange-traded commodity derivatives with or without actual exposure to Indian physical commodities can do so through the FPI route, the regulator said.

Foreign portfolio investors will be allowed to trade in all non-agricultural commodity derivatives and select non-agricultural benchmark indices. All trades will be in cash-settled contracts to begin with.

The participation of FPIs is subject to risk management measures to be brought in by exchanges. The position limits for foreign portfolio investors will be on a par with what is applicable for mutual fund schemes.

Foreign portfolio investors, including individuals, family offices and corporates, will be allowed exposure of 20% of the client-level position limit in a particular commodity derivatives contract, similar to currency derivatives.

The regulator also constituted a working group comprising representatives from SEBI and market participants to examine whether any additional risk-management measures are needed.

SEBI has already allowed institutional investors such as category-III alternate investment funds, portfolio management services and mutual funds to participate in exchange-traded commodity derivatives but that has not impacted liquidity in the market. The regulator will notify the effective date in due course.