Capital markets regulator SEBI has allowed Foreign Portfolio Investors (FPIs) to participate in the Exchange-Traded Commodity Derivatives (ETCD) segment, to further increase depth and liquidity in the market.
The regulator has already allowed institutional investors such as Category III Alternative Investment Funds (AIFs), Portfolio Management Services and Mutual Funds to participate in the ETCD market. FPIs will be allowed to participate in cash settled non-agricultural commodity derivative contracts and indices comprising such non-agricultural commodities.
FPIs other than individuals, family offices and corporates can participate in eligible commodity derivatives products as clients. FPIs belonging to categories including individuals, family offices and corporates will be allowed a position limit of 20 percent of the client level position limit in a particular commodity derivative contract.
The existing Eligible Foreign Entity (EFE) route, which required actual exposure to Indian physical commodities, has been discontinued. In 2018, the regulator had permitted EFEs having actual exposure to Indian commodity markets, to participate in the commodity derivative segment of stock exchanges for primarily hedging their exposure.
Considering that more than 10,800 FPIs are presently registered in India, even if a tenth of them participates in the Indian commodity derivatives market, the same may bring considerable liquidity in the Indian ETCDs segment.
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