SEBI To Allow FPIs In Commodity Derivatives Trading

The Securities and Exchange Board of India (SEBI) is likely to allow foreign portfolio investors (FPIs) to trade in India's commodity derivatives market from September.

According to a report, SEBI plans to permit FPIs to participate in non-cash settled, non-agricultural commodity derivative contracts. This move is expected to increase participation in the commodity market and provide overseas investors with another route to access Indian financial markets.

SEBI had issued a consultation paper on August 12 seeking feedback on allowing FPIs to enter eligible commodity derivative contracts. The consultation process concluded on September 1. The regulator may issue a circular on the matter without requiring approval from its board.

The final framework is expected to remain largely aligned with the proposal outlined in the consultation paper. Under the proposed rules, FPIs will be able to participate in approved commodity derivative contracts while complying with existing regulatory requirements and risk management measures.

This move is part of SEBI's broader efforts to improve market access and strengthen the derivatives ecosystem. Allowing greater foreign participation could increase liquidity and bring more institutional investors into India's commodity markets.

SEBI is also examining changes to the methodology used for determining settlement prices of derivative contracts. The regulator introduced the Closing Auction Session (CAS) in the equity cash segment from August 3, 2026, to determine official closing prices of securities.

The closing price calculated through CAS is also used for settling derivative contracts on expiry. However, stakeholders have raised concerns regarding the use of CAS-based closing prices for derivative settlement. After reviewing the initial implementation experience and receiving industry feedback, the regulator indicated that changes may be proposed.

A discussion paper outlining possible modifications to the settlement methodology is expected within a week. The proposed changes aim to address the concerns raised by stakeholders and improve the overall efficiency of the derivatives market.

The decision to allow FPIs in commodity derivatives trading is a significant development for the Indian financial markets. It is expected to attract more foreign investment and increase the depth and liquidity of the commodity markets.

The move is also in line with the government's efforts to promote India as a hub for international trade and investment. By allowing FPIs to participate in commodity derivatives trading, SEBI is taking a step towards achieving this goal.

In conclusion, the proposed framework for allowing FPIs in commodity derivatives trading is a positive development for the Indian financial markets. It is expected to increase participation, liquidity, and foreign investment in the commodity markets, and contribute to the growth of the Indian economy.

The final outcome of the proposal and the changes to the settlement methodology will be closely watched by market participants and stakeholders. The decision is expected to have a significant impact on the Indian financial markets and the overall economy.