The Securities and Exchange Board of India (SEBI) has widened the investment avenues available to foreign portfolio investors (FPIs) in exchange-traded commodity derivatives, allowing them to participate in a broader set of non-agricultural contracts. The move, approved by the SEBI Board, is aimed at deepening liquidity and broadening participation in India's commodity derivatives market, while putting safeguards in place to ensure FPIs do not enter the physical delivery process.
Under the revised framework, FPIs will be permitted to participate in non-agricultural index derivatives, irrespective of whether the underlying contracts are cash-settled. They will also be allowed to trade in non-cash-settled non-agricultural commodity derivatives.
However, FPIs participating in non-cash-settled non-agricultural commodity derivatives will have to exit their positions before any delivery obligation arises. As a safeguard, FPIs will be required to square off their positions before the start of the Tender Period, which begins three days before the expiry of a contract.
FPIs will also not be permitted to increase their positions from the T-3 day onwards.
Agreement With Trading Member Mandatory
Before an FPI can be enabled to trade on an exchange, it will have to enter into an agreement with its trading member or trading-cum-clearing member (TM/TCM). The agreement will specify how the FPI's positions will be managed, including arrangements to square off positions before the delivery obligation arises.
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The framework also provides an alternative mechanism for handling any residual open positions held by an FPI before the start of the Tender Period. Such positions can be devolved to the TM/TCM at the closing price or the daily settlement price declared by the exchange on the day the positions are devolved.
SEBI said the transfer of an FPI's open position to the TM/TCM will be treated as a trade and will attract the applicable statutory levies.
The safeguards are designed to ensure that FPIs can participate in a wider range of commodity derivative contracts without becoming involved in the physical delivery of the underlying commodities. The decision is part of SEBI's broader efforts to deepen India's commodity derivatives market by widening institutional participation while maintaining controls around settlement and delivery risks.
For FPIs, the changes expand the scope of exchange-traded commodity derivatives available to them, particularly across non-agricultural contracts. For exchanges and market participants, greater participation by foreign investors could support liquidity and market depth. The requirement to exit positions before the Tender Period, along with the prohibition on increasing positions from T-3, provides a defined framework for preventing FPIs from carrying positions into the delivery stage.
The agreement between FPIs and their TM/TCMs will also establish clear arrangements for managing positions and devolving any residual exposure before delivery obligations arise.
from NDTV News- Special https://ift.tt/AUmKyPO
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