Sebi allows foreign entities in commodity derivatives market

New Delhi: With an aim to deepen the commodity derivatives market, regulator Sebi Tuesday allowed trading in the segment by foreign entities with exposure to the Indian physical commodity market.

Currently, foreign entities are not permitted to directly participate in the Indian commodity derivatives market, even if they import/export various commodities from/to India.

As per the regulator, such entities by virtue of their actual exposure to the various commodities in Indian market are valuable stakeholders in the value chain of such commodities, and are also exposed to price uncertainty of Indian commodity markets. Therefore, these entities should be enabled to hedge their price risk in the country's commodity derivatives market.


Accordingly, in a circular, Sebi said it has "decided to permit foreign entities having actual exposure to Indian commodity markets to participate in the commodity derivative segment of recognised stock exchanges for hedging their exposure".
Such foreign entities will be known as Eligible Foreign Entities (EFEs).

The move comes after Sebi in its board meeting last month approved the proposal in this regard.

Under the norms, such EFEs will have actual exposure to Indian physical commodity markets. The EFE is resident in a country, whose securities or commodity derivatives market regulator is a of a bilateral pact with Sebi. The minimum net-worth requirement for such EFE will be USD 500,000.

"If such EFEs are also registered with Sebi as Foreign Portfolio Investors or Foreign Venture Capital Investors then they are permitted to participate in commodity derivatives markets as EFE provided that they have actual exposure to Indian physical commodity markets and subject to conditions that there is clear segregation of funds or securities or commodities under the respective registrations," it said.