SEBI’s latest consultation aims to attract more international institutional capital, boost liquidity, and enhance price discovery by easing restrictions on foreign portfolio investor participation in India’s exchange-traded commodity derivatives market.
India’s markets regulator has proposed widening foreign portfolio investors’ access to the country’s exchange-traded commodity derivatives market, in a move that SEBI says could draw in more institutional money, improve liquidity and sharpen price discovery in non-agricultural commodities. The consultation paper, issued on Tuesday, builds on earlier steps that already opened parts of the market to overseas investors and reflects the regulator’s push to make domestic commodity contracts more relevant to global trading.
Under the proposal, foreign portfolio investors would be able to trade non-agricultural index derivatives and physically settled commodity contracts, provided safeguards are in place to prevent them from being left with delivery obligations. According to the consultation paper, investors would first be expected to close or roll over positions before the tender or staggered delivery phase begins. If they do not, the position would automatically be shifted to the designated trading member or trading-cum-clearing member.
SEBI said the backstop mechanism would leave the foreign investor without further exposure once the transfer is executed at the exchange’s closing or daily settlement price. The regulator also proposed allowing the designated intermediary up to two trading days to bring its own position back within limits if the transfer pushes it over the prescribed threshold. FPIs could also be charged a pre-agreed proprietary risk absorption fee for positions moved under the safeguard arrangement, while SEBI’s Commodity Derivatives Advisory Committee has already backed both proposals.
The latest move follows a series of earlier relaxations. Business Standard reported in May 2023 that SEBI had allowed stock exchanges to extend direct market access to FPIs in exchange-traded commodity derivatives, while its broader framework, set out in 2023, already permitted overseas investors to trade cash-settled non-agricultural commodity derivatives and indices based on those contracts. SEBI has invited public comments on the new consultation paper until September 1.
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