SEBI opens wider commodity derivatives market to FPIs

On Thursday, the Securities and Exchange Board of India (SEBI) permitted foreign portfolio investors (FPIs) to engage in a broader range of exchange-traded commodity derivatives, aiming to enhance market depth. SEBI has ensured safeguards to prevent FPIs from holding positions that may lead to delivery obligations. FPIs are now permitted to trade non-agricultural index derivatives, regardless of whether the underlying contract is cash-settled or not.

Additionally, they can trade non-cash-settled non-agricultural commodity derivatives. However, FPIs must exit their positions before the delivery obligation arises, which begins three days before the contract's expiry. This three-day period is known as the tender period. FPIs are also prohibited from increasing their positions starting from the T-3 day.

Before trading on an exchange, FPIs must enter into an agreement with their trading or trading-cum-clearing member, outlining how their positions will be managed. This arrangement can also facilitate the squaring off of FPI's positions. Alternatively, any residual open positions before the tender period can be transferred to the trading or clearing member at the closing price or the daily settlement price declared by the exchange on the day of transfer.

Such transfers are considered trades and are subject to applicable statutory levies. All comments must be in English and written as full sentences, avoiding any abusive or personal language. SEBI has migrated to a new commenting platform, and existing registered users can continue engaging with articles. Non-users are encouraged to register and log in to post comments. Older comments can be accessed by logging into the accounts on Vuukle.