Government Mulls Permitting FIIs In Commodity Trade

Allowing foreign institutional investors (FIIs) in commodity trading is under consideration, but no decision has been taken, the finance ministry said on Thursday.

"Many suggestions have come with regard to permitting FIIs into commodity trading, but no decision has been taken. The matter is under consideration. The matter is also under consideration of SEBI," Economic Affairs Secretary Shaktikanta Das said at the Economic Editors' Conference in New Delhi.

"If the SEBI board after taking a view makes recommendation as a regulator, if they permit... if it requires government permission, we will see. But so far, no decision has been taken," he said.

FIIs are also known as foreign portfolio investors. Banks, mutual funds and FIIs are not allowed to participate in the commodity trading like the stock market. However, commodity trading like stocks is also entirely on non-cash transactions.

"It's the government's effort to promote all this trading through non-cash means," he said.

In 2014, a five-member committee had said high-cost transactions in commodity futures caused a hindrance to the market and suggested this could be reduced if banks and FIIs were allowed to participate in the commodity market.

The committee had told the government in the report that high transaction costs in the futures market were an impediment to arbitrage. These, the panel had said, could be reduced by allowing banks and financial institutions, including FIIs, to participate in commodity futures trading.

Policy and regulatory hurdles currently restrict banks and financial institutions from participating in the commodity market.

Banks are also restricted under the Banking Regulation Act. The committee suggested that these needed to be removed to widen participation.