The Board of the Securities and Exchange Board of India (SEBI), at its meeting on Wednesday, approved the participation of Foreign Portfolio Investors (FPI) in Exchange Traded Commodity Derivatives (ETCDs).
The FPIs will be allowed to participate in Indian ETCDs, subject to certain risk management measures, the capital market regulator said.
According to the SEBI, 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 FPIs will be allowed to trade in all non-agricultural commodity derivatives and select non-agricultural benchmark indices. To begin with, the FPIs will be allowed only in cash-settled contracts, the SEBI said.
The FPIs will be allowed to participate in Indian ETCDs, subject to certain risk management measures.
As regards the position limits for participation of FPIs in ETCDs, the SEBI said that 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.
Then, FPIs belonging to categories viz. individuals, family offices and corporates will be allowed position limit of 20 per cent of the client level position limit in a particular commodity derivatives contract, similar to the position limits prescribed for currency derivatives, it said.
A Working Group comprising of representatives from the SEBI and market participants has also been constituted to review/examine whether any additional risk management measures, are required to be prescribed for FPIs, it added.
The markets regulator said the participation of FPIs in ETCDs is expected to enhance liquidity and market depth as well as promote efficient price discovery.
The SEBI has already allowed institutional investors such as Category III AIFs, Portfolio Management Services and Mutual Funds to participate in ETCDs.
The ffective date will be notified by a circular, the SEBI said.
Welcoming the SEBI's move, Kishore Narne, Head - Commodities and Currencies, Motilal Oswal Financial Services said that though it had limited the participation to only non-agriculture and cash settled contracts for now, it may be a small step towards expanding the reach of our markets.
"As India grows as an economic behemoth it is important to integrate our commodity markets with the global markets, so this step opens up the gates for free flow of capital and ease of trading by foreigners which will reduce pricing gaps and would help in enhancing the liquidity in our markets," he said.
The SEBI Board approved amendment to SEBI (Mutual Funds) Regulations, 1996 to remove applicability of the definition of "associate" as per the said regulations to such sponsors, which invest in various companies on behalf of the beneficiaries of insurance policies or such other schemes as may be specified by the Board from time to time.