The Securities and Exchange Board of India (SEBI) on September 29, 2022, issued a circular regarding the participation of SEBI registered Foreign Portfolio Investors (FPIs) in Exchange Traded Commodity Derivatives in India.
In order to promote institutional participation in Exchange Traded Commodity Derivatives (ETCDs), SEBI has permitted Category III Alternative Investment Funds, Mutual Funds, and Portfolio Management Services to participate in ETCDs vide Circular No. SEBI/HO/CDMRD/DMP/CIR/P/2017/61 dated June 21, 2017, Circular No. SEBI/HO/IMD/DF2/CIR/P/2019/65 dated May 21, 2019, and Circular No. SEBI/HO/IMD/DF1/CIR/P/2019/066 dated May 22, 2019, respectively.
The SEBI has decided to allow foreign investors to participate in Indian ETCDs through the FPI route, and it has also laid down the conditions in order to be a participant.
The following conditions have been stated:
• To begin with, FPIs will be allowed to participate in cash settled non-agricultural commodity derivative contracts and indices comprising such non-agricultural commodities.
• FPIs desirous of participating in ETCDs shall be subject to risk management measures applicable, from time to time.
• Position Limits:
o FPIs other than individuals, family offices and corporates may participate in eligible commodity derivatives products as ‘Clients’ and shall be subject to all rules, regulations and instructions, position limit norms as may be applicable to clients, issued by SEBI and stock exchanges, from time to time.
o FPIs belonging to categories viz. individuals, family offices and corporates will be allowed position limit of 20 per cent of the client level position limit in a particular commodity derivative contract.
• The participation of FPIs including individuals, family offices and corporates shall be subject to compliance with the provisions of SEBI (Foreign Portfolio Investors) Regulations, 2019, SEBI (Custodian) Regulations, 1996 and other applicable SEBI circulars on ETCDs.
• Stock Exchanges/Clearing Corporations may specify additional safeguards/conditions, as deemed fit, to manage risk and ensure orderly trading in ETCDs.
The provisions of this circular will come into immediate effect.
[Circular No. SEBI/HO/MRD/MRD-RAC-1/P/CIR/2022/131]
