Markets regulator Securities and Exchange Board of India (SEBI) has allowed foreign portfolio investors (FPIs) to participate in the exchange-traded commodity derivatives market.
In the statement issued on June 29 after a meeting of the SEBI director board, the regulator has said the existing Eligible Foreign Entity (EFE) route, which required actual exposure to Indian physical commodities, has been discontinued. Any foreign investor desirous of participating in Indian ETCDs with or without actual exposure to Indian physical commodities can do so through the FPI route.
The move is aimed at further increasing depth and liquidity in commodity derivative markets. In addition, their participation may help promote efficient price discovery.
The regulator has stated that FPIs will be allowed to trade in all non-agricultural commodity derivatives but in a few select broad agricultural commodity derivatives, and to begin with, FPIs will be allowed only in cash-settled contracts.
Talking about the position limits for participation of FPIs in ETCDs, SEBI said, "The position limits for FPIs (other than individuals, family offices and corporate bodies) will be at par with those presently applicable for Mutual Fund schemes i.e. as a client."
The markets regulator further mentioned that FPIs belonging to categories such as individuals, family offices and corporates will be allowed a position limit of 20 percent of the client-level position limit in a particular commodity derivatives contract, similar to the position limits prescribed for currency derivatives.
Currently, institutional investors such as Category III AIFs, Portfolio Management Services and Mutual Funds are allowed to participate in the Indian commodity derivatives market.The regulator said the effective date will be notified through a circular.