India eases foreign investor access to commodity derivatives, expands scope of portfolio managers
MUMBAI: India on Thursday allowed foreign investors to trade in physically settled contracts, giving them greater access to non-farm commodity contracts as the country looks to increase liquidity and better align the market with global counterparts. Markets regulator Securities and Exchange Board of India also allowed portfolio managers based in the country to manage global assets, complementing…
India has eased regulations for foreign investors, allowing them to trade in physically settled commodity contracts and expanding the scope of portfolio managers. The Securities and Exchange Board of India (SEBI) announced these changes, aiming to increase market liquidity and align it with global standards.
Under the new rules, foreign investors can now participate in contracts linked to crude oil, natural gas, gold, and silver, provided they settle these contracts by not delivering the actual goods. This is a significant change, as previously, operational constraints prevented overseas investors from engaging in these types of commodity derivatives.
Additionally, SEBI has approved portfolio managers based in India to manage global assets, aligning with the government's efforts to attract overseas fund management activity. Portfolio managers can now invest in both global securities and those to be listed, similar to the allowances given to mutual funds and alternative investment funds.
Foreign investors currently face restrictions when it comes to settling contracts related to crude oil, natural gas, gold, or silver due to operational limitations. However, SEBI has now permitted these investors to square-off or roll-over their positions at least three days before each contract's expiry. Any positions left open would be automatically transferred to designated trading members, thereby preventing overseas investors from participating in the delivery process.
This move is expected to boost bullion trading volumes and facilitate foreign investor participation in the Indian market, aligning it more closely with other major global markets. Since foreign investors were allowed to trade in cash-settled commodity derivatives in 2022, liquidity in crude oil and natural gas options has significantly increased, accounting for a growing share of open interest, according to regulatory data.
The capital markets regulator, SEBI, attributes this development to the exchange's energy contracts, which remain a key growth engine for India's commodities exchange, MCX. In the fiscal year ending March 2026, energy derivatives turnover on MCX increased by 29%.
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