SEBI Plans Opening Commodity Derivatives To FPIs, Cash-Settled Contracts First

The Securities and Exchange Board of India is mulling opening the commodities derivative market to foreign portfolio investors in a phased manner, sources told NDTV Profit.

The issue is being discussed in SEBI's Commodity Derivatives Advisory Committee, which is evaluating measures to boost participation and liquidity in commodity markets.

If the proposal goes through, FPIs would first be allowed to enter the non-agricultural commodity derivatives trade, including energy and metals, the sources said.

Entry into agricultural commodity derivatives will also be discussed at a later stage. For now, a phased entry, first into non-agricultural segments is considered the favoured approach, one of the persons privy to the development said.

Cash-settled contracts are emerging as the preferred framework for FPI participation, said another source. Physical delivery-based contracts are viewed as operationally complex for foreign investors due to challenges related to storage, warehousing and logistics. Cash settlement allows investors to square off positions financially, without the need to handle the underlying commodity.

Commodity exchanges have been pushing for FPI entry, arguing that overseas participation would help deepen volumes, improve price discovery and enhance global integration of Indian commodity markets, the sources said.

At the same time, SEBI remains cautious about the potential impact on domestic markets. Sources said the regulator is focused on ensuring that increased participation by FPIs does not lead to excessive volatility or harm retail investors, who form a significant portion of commodity derivatives participants.

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