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Informist, Tuesday, Aug. 11, 2026

 

--SEBI seeks public comments on FPI participation in commodity derivatives 

--SEBI mulls allowing FPI participation in non-agricultural index derivatives 

 

NEW DELHI – The Securities and Exchange Board of India has sought public comments on allowing foreign portfolio investors to participate in non-agriculture commodity derivative contracts that are physically settled. This will improve price discovery and strengthen convergence between the derivatives and physical markets, the regulator said in a consultation paper. 

 

The market regulator also proposed allowing FPI participation in non-agricultural index derivatives contracts irrespective of their settlement mechanism. At present, FPIs can trade only in cash-settled non-agricultural derivative contracts, where the contracts' underlying is also cash-settled to avoid delivery-related issues. SEBI has sought views by Sept. 1. 

 

Since foreign investors were allowed to participate in exchange-traded commodity derivatives, liquidity in crude oil and natural gas options has notably increased, enhancing market depth, SEBI said. 

 

Japan's Osaka Securities Exchange and Tokyo Commodity Exchange attract active participation from foreign investors, and they have been driving the surge in some of the physically-settled commodity derivatives, SEBI said. "In the USA's CME and Europe's ICE, clearing members are required to assess whether clients possess the operational and financial capacity to fulfil delivery obligations and, where assurance is lacking, ensure that positions are liquidated prior to expiry," SEBI said.

 

However, in India, foreign investors are not permitted to trade in physically settled commodity contracts, as they may not be able to take or make delivery due to the absence of a permanent establishment in the country. Tuesday, SEBI proposed allowing FPIs to take positions in physically-settled non-agri commodity derivative contracts available at domestic exchanges. "However, FPIs must compulsorily square off or roll over positions before the start of the tender period, that is, three days before the expiry of the contract," SEBI said. 

 

SEBI has also proposed several safeguard mechanisms, mandating that FPIs enter tripartite agreements with the professional clearing member and trading member. The regulator also plans to enable an automatic transfer mechanism for FPIs' non-squared-off positions to trading members or trading-cum-clearing members.  End

 

Reported by Afra Abubacker

Edited by Saji George Titus

 

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