Sebi proposes to expand FPI play in commodities

Mumbai: Securities and Exchange Board of India (Sebi) has proposed allowing foreign portfolio investors (FPI) to participate in non-agricultural commodity derivative contracts, which are physically settled on domestic exchanges. The proposals are aimed at widening the scope of FPI participation in commodity derivatives.

Currently, overseas investors can trade in non-agricultural commodity derivative contracts that are only cash settled. For commodity index derivatives, FPIs currently can participate only where the index and its underlying contracts are cash-settled.

In a consultation paper issued on Tuesday, Sebi has proposed removing this restriction as index derivatives are always cash-settled irrespective of whether their underlying contracts are cash-settled. For non-agricultural commodity derivatives, which are physically settled and not by cash, Sebi has proposed that FPIs must be allowed to take positions in such contracts but compulsorily square off or roll over their positions before the start of the tender period, which is three days before expiry of the contract.


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"It would also facilitate greater integration of India's commodity derivatives market with international commodity markets and support the development of Indian commodity contracts as credible price discovery venues," said Sebi, which has invited comments on the proposals. It said foreign investors are allowed to trade physically settled commodity derivative contracts in international markets.