“The participation of FPIs in exchange traded commodity derivatives is expected to enhance liquidity and market depth as well as promote efficient price discovery,” Sebi said in a release after the board meeting.
The regulator said FPIs will be allowed to trade in all non-agricultural commodity derivatives and select non-agricultural benchmark indices.
The regulator said, to begin with, FPIs will be allowed only in cash-settled contracts.
At present, crude oil, natural gas and indices are cash settled; while in others, traders must deliver the commodities as part of settlement.
The regulator has discontinued the existing eligible foreign entity route, which required actual exposure to Indian physical commodities.
Any foreign investor desirous of participating in Indian exchange traded commodities derivatives with or without actual exposure to Indian physical commodities can do so through FPI route, said Sebi.
“Though they 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,” Kishore Narne, head – commodities and currencies,
. “As India grows as an economic behemoth it is important to integrate our commodity markets with the global markets. 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.”
Foreign portfolio investors including individuals, family offices and corporates have been allowed exposure of 20% of the client level position limit in a particular commodity derivatives contract, similar to currency derivatives.
Sebi has already allowed institutional investors such as category III AIFs (alternative investment funds), portfolio management services and mutual funds to participate in the exchange traded commodity derivatives segment but that has not affected liquidity in the market.
“It was a much-awaited move that will enhance broader participation of players in commodities derivatives segment,” said Naveen Mathur, director- commodities and currencies, Anand Rathi Share and Stock Brokers. “Sebi has enabled all major institutional players to participate in the segment.”
The regulator said it would notify the effective date through a circular.
The Sebi board also cleared a proposal to tweak rules governing limited purpose clearing corporation (LPCC), for clearing and settlement of corporate bond repo transactions.
“Over time, the LPCC shall put in place a mechanism for infusion of additional capital in a phased manner, in line with the risk management and increasing trading volumes in order to meet the networth requirements under the PSS (Payment and Settlements System) Act,” Sebi said.
The capital markets regulator, in consultation with the Reserve
, will review the outsourcing agreements of the LPCC in relation to its critical IT support infrastructure for running the core activities after two or three years.
The regulator’s board also approved amendment to mutual fund rules to remove applicability of the definition of ‘associate’ to such sponsors, which invest in various companies on behalf of the beneficiaries of insurance policies or such other schemes.
