Sebi allows custodial services in commodity market, paves way for MF entry

Markets regulator Sebi has allowed custodial services in the commodity derivatives market which would enable participation of institutional investors, including mutual funds, in the segment.

Under the new framework, existing custodians will be permitted to add commodities as an asset class and provide physical delivery of both the securities and commodities, Securities and Exchange Board of India (Sebi) said in a notification dated January 1.

Currently, the regulation on custodian of securities provide safekeeping of securities, gold or gold related instruments, title deeds of real estate and services incidental.


However, it is not applicable for protection of goods, which are underlying assets of commodity derivatives.
To enable participation of institutional investors in commodity derivatives market, the regulator has made necessary amendments in the custodian regulations so as to provide for requisite custodial services.

The responsibility of custodians will not be limited to holding of securities but would also include holding of goods.
The move is aimed at enabling participation of institutional investors such as mutual funds and portfolio managers in the commodity derivatives market.