Commodity and capital market regulator SEBI plans to allow mutual funds and portfolio management service providers to participate in commodity derivatives market in less than six months.

SEBI Executive Director SK Mohanty said discussions with mutual funds and PMS providers are complete and SEBI is in the final stage of announcing the regulation for this segment of market participants in order to deepen the market and improve the price discovery process.

The regulator is not averse to letting even foreign institutional investors participate, but the regulatory framework needs to be put in place before taking any decision, he said at a seminar on ‘Institutional Participation in Commodity Derivatives’ organised jointly by MCX and FICCI here on Tuesday.

SEBI is currently considering foreign entities that have business interests in India either by way of export or import, to take a position in the commodity derivatives market, he said. Before allowing them to participate, however, it is necessary to have adequate risk management and surveillance mechanisms in place, he added.

In June, SEBI opened up the commodity market to hedge funds registered as Category III Alternative Investment Funds.

The regulator is facilitating large institutional investments to ensure there is adequate liquidity in far-month contracts, and convergence between spot and future prices in near-month contracts, he said.

On the progress of government plan to launch spot gold exchange, Mohanty that SEBI has no role to play as spot exchanges are not under its domain.

Mrugank Paranjape, Managing Director, MCX said mutual funds and PMS would bring in sticky money to commodity derivatives market and encourage traction in far-month contracts.

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