The Securities and Exchange Board of India (Sebi) on Thursday allowed foreign investors to participate in Indian exchange-traded commodity derivatives (ETCDs) through the FPI route, subject to conditions.
FPIs will be allowed to participate in cash settled non-agricultural commodity derivative contracts and indices comprising such non-agricultural commodities, the regulator said on Thursday.
The move is aimed at further increasing depth and liquidity in commodity derivative markets. “Enhanced liquidity can gradually enable the Indian commodity derivative market to serve as a global benchmark for various commodities, thereby shifting India from the role of a price taker to a price setter,” the market regulator had said in its consultation paper earlier this year.
FPIs wanting to participate in ETCDs shall be subject to risk management measures applicable, from time to time.
FPIs other than individuals, family offices and corporates may participate in eligible commodity derivatives products as ‘clients’ and shall be subject to all rules, regulations and instructions, position limit norms as may be applicable to clients, issued by Sebi and stock exchanges, from time to time.
FPIs who are individuals, family offices and corporates will be allowed position a limit of 20% of the client level position limit in a particular commodity derivative contract.
The participation of FPIs, including individuals, family offices and corporates, shall be subject to compliance with the provisions of Sebi (FPIs) Regulations, 2019, Sebi (Custodian) Regulations, 1996, and other applicable Sebi circulars on ETCDs, the regulator said.
Stock exchanges and clearing corporations may specify additional safeguards and conditions, as deemed fit, to manage risk and ensure orderly trading in ETCDs.
In October 2018, Sebi had permitted eligible foreign entities (EFEs) having actual exposure to Indian commodity markets, to participate in the commodity derivative segment of recognised stock exchanges for primarily hedging their exposure. Sebi said it had decided to discontinue this route considering the non-participation by such EFEs in ETCDs in the past three years.