3 weeks ago
Sebi proposes wider FPI access to non-agri commodity derivatives
India has special markets where people trade things like oil, gold and metal rather than company shares, and these are called commodity markets.
Today, investors from other countries can only trade a few of these products, like oil and gas, and only in a way that avoids taking physical goods.
India's market regulator, called Sebi, wants to let these foreign investors trade many more of these products, including contracts where real goods would normally be delivered.
There is one big problem: foreign investors are not registered for India's goods and services tax, so they cannot take delivery of actual goods from exchange warehouses.
Sebi has come up with a rule to solve this.
Investors would have to close or roll over their trades a few days before contracts end.
If they don't, the trade automatically moves to a broker, so foreign investors never have to take physical goods.
Sebi says the change should bring in more institutions, better prices and stronger links between derivatives and physical markets.
Sebi is asking the public for opinions until 1 September before making a final decision.
Sebi has proposed allowing foreign portfolio investors (FPIs) to trade physically settled non-agricultural commodity derivatives in India.
FPIs currently may only trade cash-settled non-agri commodity derivatives such as crude oil and natural gas, a segment opened to them in June 2022.
The regulator also suggested allowing FPIs to trade non-agricultural index derivatives contracts, which are always cash settled.
Under the plan, FPIs must square off or roll over positions starting three days before the tender period, or their open positions would be automatically transferred to a designated trading member or trading-cum-clearing member.
The consultation paper is open for public comments until 1 September and aims to deepen liquidity and improve price discovery while avoiding physical delivery and GST complications.
- Who
- The Securities and Exchange Board of India (Sebi) and foreign portfolio investors (FPIs)
- What
- A proposal to widen FPI access to non-agricultural commodity derivatives, including physically settled and index contracts
- Where
- India's exchange-traded commodity derivatives market
- When
- Consultation paper issued on a Tuesday, with public comments open until 1 September
- Why
- To deepen institutional participation and liquidity, improve price discovery, and avoid physical delivery and GST complications for overseas investors
Key facts
- Regulator
- Securities and Exchange Board of India (Sebi)
- Current FPI access
- Cash-settled non-agri commodity derivatives only, since June 2022
- Proposed access
- Physically settled non-agri commodity derivatives and non-agri index derivatives
- Examples of current contracts
- Crude oil and natural gas
- Expiry rule
- Square off or roll over positions starting from T-3, three days before the tender period
- Fallback mechanism
- Automatic transfer of open positions to a designated trading member (TM) or trading-cum-clearing member (TCM)
- Risk compensation
- Pre-agreed 'Proprietary Risk Absorption Charge' payable by the FPI
- Public comment deadline
- 1 September
Quotes
Sebi
Securities and Exchange Board of India, India’s securities market regulator
“"FPIs should be allowed to participate in non-agricultural index derivatives contracts," the regulator said in its consultation paper.”
thehansindia.com










