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Sebi proposes wider FPI access to physically settled commodity derivatives
The plan would let foreign portfolio investors expand beyond cash-settled contracts, including physically settled non-agricultural derivatives, subject to timing rules before tender or delivery begins.
India's market regulator, Sebi, has proposed widening foreign portfolio investor participation in India’s exchange-traded commodity derivatives market, including allowing access to physically settled non-agricultural contracts, according to a consultation paper reported by LiveMint Markets.
FPIs are currently limited to non-agricultural commodity derivatives that are cash settled, such as crude oil and natural gas contracts. Sebi is suggesting the regulator open up physically settled non-agricultural commodity derivatives, while noting that bullion, base metals and agricultural derivatives are compulsorily deliverable upon expiry.
Sebi also proposed allowing FPIs to trade in non-agricultural index derivatives, saying those contracts are always cash settled regardless of the underlying commodity and would not create delivery-related issues. The regulator set specific operational rules, including requiring FPIs to square off or roll over positions before the start of the tender or staggered delivery period, described as three days before contract expiry.
If an FPI does not voluntarily close or roll over, Sebi’s proposal would automatically transfer open positions to a designated trading member or trading-cum-clearing member onto its proprietary account, with the FPI retaining an ability to exit until the close of market hours on the day before the tender period. The proposal is aimed at reducing constraints faced by FPIs because they cannot give or take delivery on Indian exchanges under the goods and services tax framework, according to LiveMint Markets.
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