SEBI approves FPIs trading in exchange-traded commodity derivatives

New Delhi: Capital market regulator Securities and Exchange Board of India (SEBI) has approved the participation of Foreign Portfolio Investors (FPIs) in the exchange-traded commodity derivatives, it said in a statement.

Accordingly, the existing eligible foreign entity (EFE) route, which required actual exposure to Indian physical commodities, has been discontinued. Any foreign investor desirous of participating in Indian exchange-traded commodity derivatives, with or without actual exposure to Indian physical commodities, can do now so through foreign portfolio investment route.

Effective date for the same will be notified vide a Circular, it said.

"FPIs will be allowed to trade in all non-agricultural commodity derivatives and select non-agricultural benchmark indices. To begin with, FPIs will be allowed only in cash-settled contract," the regulator said in the statement.

FPIs will, however, be allowed to participate in Indian exchange trade commodity derivatives, subject to certain risk management measures. A Working Group comprising of representatives from SEBI and market participants has also been constituted to review/examine whether any additional risk management measures, are required to be prescribed for FPIs.

The participation of FPIs in exchange trade commodity derivatives is expected to enhance liquidity and market depth as well as promote efficient price discovery. SEBI has already allowed institutional investors such as Category III Alternate Investment Funds, Portfolio Management Services and Mutual Funds to participate in such derivatives.