The Securities and Exchange Board of India (SEBI) is considering a proposal to allow Foreign Portfolio Investors (FPIs) to participate in physically settled non-agricultural commodity derivatives in India. The move could increase foreign investor participation in the country\u2019s commodity markets, improve liquidity and strengthen price discovery. SEBI is expected to seek public feedback before taking a final decision.<\/p>\n\n\n\n
Currently, FPIs can participate in certain exchange-traded commodity derivatives, but their access is largely limited to cash-settled contracts. Under cash settlement, investors receive or pay the difference between the contract price and the final settlement price instead of dealing with the physical commodity.<\/p>\n\n\n\n
SEBI is now considering allowing FPIs to trade in physically settled non-agricultural commodity derivatives. These could include contracts linked to commodities such as gold, silver, crude oil and natural gas.<\/p>\n\n\n\n
However, FPIs would not be allowed to remain in these positions until physical delivery.<\/p>\n\n\n\n
Under the proposed framework, FPIs would have to close their positions or roll them over at least three days before the delivery period begins.<\/p>\n\n\n\n
This is intended to ensure that foreign investors do not end up having to take physical delivery of commodities in India.<\/p>\n\n\n\n
If an FPI fails to exit or roll over its position within the specified timeframe, the position could be transferred to a designated trading or clearing member.<\/p>\n\n\n\n
The transfer would take place at the applicable settlement price declared by the exchange. The designated member would then take responsibility for managing the position and any delivery-related obligations.<\/p>\n\n\n\n
The proposal is aimed at deepening India\u2019s commodity derivatives market.<\/p>\n\n\n\n
Greater participation from foreign investors could bring additional liquidity and improve the ability of buyers and sellers to transact efficiently. It could also contribute to better price discovery by bringing more global participants and perspectives into the market.<\/p>\n\n\n\n
Foreign investors already participate in physically settled commodity derivatives across several major global markets. SEBI\u2019s proposal could therefore bring India\u2019s framework closer to international practices.<\/p>\n\n\n\n
The existing restrictions are partly linked to the practical difficulties FPIs could face if they were required to take physical delivery.<\/p>\n\n\n\n
Foreign investors may not have the infrastructure needed to handle physical commodities in India. They could also face regulatory and tax-related requirements associated with physical transactions.<\/p>\n\n\n\n
The proposed exit mechanism is designed to address these concerns while giving FPIs wider access to commodity derivatives.<\/p>\n\n\n\n
The proposed framework also provides a mechanism for positions that remain open beyond the permitted period.<\/p>\n\n\n\n
FPIs participating in these contracts would need to have an arrangement with a designated broker or clearing member. If a position remains open beyond the required exit period, it could be transferred to the member\u2019s proprietary account.<\/p>\n\n\n\n
The broker or clearing member would then assume responsibility for the position and manage the associated risks.<\/p>\n\n\n\n
The framework could also include a pre-agreed charge or penalty if the broker has to take over a position because the FPI failed to exit it on time.<\/p>\n\n\n\n
If implemented, the proposal could significantly expand foreign investor participation in India\u2019s commodity derivatives market.<\/p>\n\n\n\n
Higher participation could increase trading volumes and market depth, while potentially improving price discovery. It could also bring Indian commodity markets closer to global practices.<\/p>\n\n\n\n
For domestic market participants, increased liquidity could make it easier to enter and exit positions. At the same time, the proposed safeguards are intended to limit the operational risks associated with physical settlement.<\/p>\n\n\n\n
SEBI had allowed FPIs to participate in exchange-traded commodity derivatives in 2022, but their participation was initially restricted to cash-settled non-agricultural commodity derivatives and related indices. The latest proposal would expand that access to physically settled contracts.<\/p>\n\n\n\n
The proposal is still at the consultation stage and does not immediately allow FPIs to trade in physically settled commodity derivatives.<\/p>\n\n\n\n
SEBI is seeking feedback from market participants and other stakeholders before finalising the framework. The consultation process will help determine whether any changes are required to the proposed mechanism.<\/p>\n\n\n\n
If approved, the move could give foreign investors wider access to India\u2019s commodity markets while ensuring that they do not have to directly handle physical delivery.<\/p>\n\n\n\n
Overall, the proposal could be an important step towards making India\u2019s commodity derivatives market deeper, more liquid and more closely aligned with global markets.<\/p>\n\n\n\n
Source: MoneyControl<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":" The Securities and Exchange Board of India (SEBI) is considering a proposal to allow Foreign Portfolio Investors (FPIs) to participate in physically settled non-agricultural commodity derivatives in India. The move could increase foreign investor participation in the country\u2019s commodity markets, improve liquidity and strengthen price discovery. SEBI is expected to seek public feedback before taking […]<\/p>\n","protected":false},"author":6,"featured_media":262,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[],"class_list":["post-186","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/thesimplehaishow.com\/thesimplehaishow\/wp-json\/wp\/v2\/posts\/186","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thesimplehaishow.com\/thesimplehaishow\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thesimplehaishow.com\/thesimplehaishow\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thesimplehaishow.com\/thesimplehaishow\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/thesimplehaishow.com\/thesimplehaishow\/wp-json\/wp\/v2\/comments?post=186"}],"version-history":[{"count":1,"href":"https:\/\/thesimplehaishow.com\/thesimplehaishow\/wp-json\/wp\/v2\/posts\/186\/revisions"}],"predecessor-version":[{"id":187,"href":"https:\/\/thesimplehaishow.com\/thesimplehaishow\/wp-json\/wp\/v2\/posts\/186\/revisions\/187"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/thesimplehaishow.com\/thesimplehaishow\/wp-json\/wp\/v2\/media\/262"}],"wp:attachment":[{"href":"https:\/\/thesimplehaishow.com\/thesimplehaishow\/wp-json\/wp\/v2\/media?parent=186"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thesimplehaishow.com\/thesimplehaishow\/wp-json\/wp\/v2\/categories?post=186"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thesimplehaishow.com\/thesimplehaishow\/wp-json\/wp\/v2\/tags?post=186"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}