Sebi allows FPIs in non-agri commodity derivatives

The market regulator Sebi has granted foreign portfolio investor (FPI) participation in select non-agricultural commodity futures and options, aiming to bolster institutional investment in India's commodity derivatives market. This decision is part of broader regulatory changes encompassing portfolio manager rules, settlement proceedings, research entity norms, advertisement codes, and expanded vault manager regulations.

The approval for FPIs is particularly significant for India's non-agricultural commodity derivatives market, which involves contracts for commodities like bullion, energy, and base metals. While FPIs have previously been able to trade cash-settled non-agricultural commodity contracts and indices, non-delivery contracts have posed operational and tax challenges due to the lack of permanent establishments in India.

The new framework permits FPIs to engage in non-cash-settled non-agricultural commodity derivatives, but with a distinct delivery firewall in place. Additionally, the board has approved revisions to portfolio manager regulations, enhancing flexibility and expanding the product offerings for portfolio managers. These changes include the creation of a new mutual fund-only PMS category, increased investment flexibility in pre-IPO securities and unlisted debt for discretionary PMS, and expanded overseas investment opportunities.

Furthermore, Sebi has streamlined settlement proceedings regulations to simplify the settlement framework and ensure more feasible settlement terms while maintaining deterrent measures. The review encompasses adjustments in settlement amount calculations, default counting, and the application of mitigating and aggravating factors.

Research entities have also benefited from eased norms for call record maintenance, reducing compliance burdens for research analysts and other research institutions while preserving audit and accountability safeguards. Lastly, Sebi has introduced a uniform advertisement code for certain regulated entities, aiming to standardize advertising norms and reduce duplicative codes across different entities.

Some entities may now be eligible for post-issue reporting, and brand-level or entity-level celebrity endorsements may be allowed under specific conditions. Lastly, the regulator has expanded the scope of vault manager regulations beyond electronic gold receipts, indicating a broader vision for commodity-market infrastructure development beyond gold-linked products.