The Securities and Exchange Board of India (SEBI) board on Thursday approved a proposal to allow foreign portfolio investors (FPIs) to participate in a wider range of non-agricultural commodity derivatives, including physically settled contracts, as part of measures aimed at deepening participation and liquidity in India’s commodity markets.
Under the new framework, FPIs will be allowed to trade non-agricultural commodity index derivatives and non-agricultural commodity derivatives that are not cash-settled. However, for physically settled non-agricultural commodity contracts, FPIs will have to square off their positions three days before expiry, before the start of the tender or staggered delivery period.
FPIs will not be permitted to increase their positions from the T-3 day. If any positions remain, they can be transferred to the proprietary account of a designated trading member (TM) or trading-cum-clearing member (CM). What changes for FPIs? FPIs will need to have an agreement with the relevant TM/CM for handling or squaring off any residual positions.
Such positions can be devolved to the TM/CM at the exchange-declared closing or daily settlement price, with applicable statutory levies charged on the devolution. Currently, FPIs can participate in cash-settled non-agricultural commodity derivatives, while contracts such as bullion and base metals are physically deliverable.
The broader access is aimed at encouraging greater foreign investor participation and boosting trading volumes in India's commodity derivatives market.