Capital markets regulator Securities Exchange Board of India (SEBI) has given its go-ahead to foreign portfolio investors (FPIs) to play in commodity derivatives markets, reported Business Line.
The decision comes at a time when commodity exchanges are reeling under a fall in trading volumes. SEBI took this landmark decision to permit FPI trading in commodity derivatives on Wednesday.
SEBI said that any FPI willing to participate in commodity derivatives with or without actual exposure to Indian physical commodities can do so through the FPI route.
SEBI said FPIs can trade in all non-agricultural commodity derivatives and a few select broad agricultural commodity derivatives. But to begin with, FPIs will be allowed only in cash-settled contracts.
SEBI added the position limits for FPIs (other than individuals, family offices and corporate bodies) will be at par with those presently applicable for mutual fund schemes i.e. as a client.
FPIs belonging to categories such as individuals, family offices and corporates will be allowed a position limit of 20 per cent of the client-level position limit in a particular commodity derivatives contract, similar to the position limits prescribed for currency derivatives.
As of now institutional investors such as Category III AIFs, Portfolio Management Services and mutual funds are allowed to participate in the Indian commodity derivatives market. Effective date will be notified vide a circular.