Capital and commodity market regulator Securities and Exchange Board of India (SEBI) has allowed foreign portfolio investors (FPIs) to invest in cash-settled non-agricultural commodity derivative contracts and indices comprising non-agricultural commodities with immediate effect.
FPIs, other than individuals, family offices and corporates may participate in eligible commodity derivatives products as ‘Clients’ and shall be subject to all rules, regulations and instructions, position limit norms applicable to clients, issued by SEBI and stock exchanges, said the regulator.
FPIs belonging to categories viz. individuals, family offices and corporates will be allowed a position limit of 20 per cent of the client level position limit in a particular commodity derivative contract, it said.
Stock exchanges, clearing corporations may specify additional safeguards/conditions, as deemed fit, to manage risk and ensure orderly trading in the commodity derivatives market, said SEBI in a circular issued on Thursday.
In 2018, SEBI allowed eligible foreign entities having actual exposure to Indian commodity markets, to participate in the commodity derivative segment of stock exchanges for primarily hedging their exposure.
However, there was not much interest from foreign investors in Indian commodity exchange. Based on the representations of the market participants and recommendations of Commodity Derivatives Advisory Committee of SEBI, it has been decided to discontinue the existing route for eligible foreign entities, said SEBI.
With most of the non-agriculture commodities such as energy and metal derivatives contracts being settled based on international prices, there is little interest for foreign investors in the Indian commodity markets, said an analyst.