India’s markets regulator SEBI has proposed expanding foreign portfolio investors’ access to exchange-traded commodity derivatives, including non-agricultural contracts, in a bid to deepen liquidity and enhance price formation across the sector.
India’s markets regulator has moved to widen foreign portfolio investors’ access to exchange-traded commodity derivatives, in a step designed to deepen liquidity and make price formation more efficient across the sector. In a consultation paper issued on Tuesday, the Securities and Exchange Board of India said the changes would help broaden the investor base and improve the link between futures prices and the underlying physical market, according to Business Standard.
The first proposal would let foreign portfolio investors trade non-agricultural index derivatives regardless of whether the underlying contracts are cash-settled. Sebi said index derivatives are always settled in cash, which means the rule should not create delivery complications. The Commodity Derivatives Advisory Committee has backed that view, Business Standard reported.
A second proposal goes further by opening physically settled contracts in non-agricultural commodities such as crude oil, natural gas, gold, silver and base metals to foreign portfolio investors. LiveMint reported that the regulator is trying to address tax and operational barriers that have kept these investors out of bullion and metal contracts, while NDTV Profit said Sebi is looking at a phased opening to the segment.
To limit delivery risk, Sebi wants foreign portfolio investors to square off or roll over positions before the tender period begins, three days before expiry. If they do not, the position would be shifted automatically after market hours to a designated trading member or trading-cum-clearing member. Business Standard said the regulator is also considering a two-tier structure, backed by standardised agreements and a possible proprietary risk absorption charge to cover the transfer burden.
The proposal builds on a broader push to enlarge participation in India’s commodity market. Business Standard reported in 2022 that Sebi had already approved foreign portfolio investor access to exchange-traded commodity derivatives, and more recent reporting from Upstox and the Government Economic Times has said the regulator is also weighing entry for banks, insurers and pension funds. Sebi has sought public comments on the draft circular by September 1.
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