SEBI mulls allowing FPIs to trade physical-settled non-agri derivatives

Sebi proposed on Tuesday allowing foreign portfolio investors to participate in non-cash settled, or physically settled, non-agricultural commodity derivative contracts traded on domestic exchanges, subject to a set of safeguards. The proposal aims to deepen institutional participation and liquidity in the country's commodity derivatives market, improve price discovery, and strengthen convergence between the derivatives and physical markets, Sebi said in a consultation paper. 

"Foreign portfolio investors should be allowed to participate in non-agricultural index derivatives contracts," the regulator stated in the paper. 

Currently, foreign portfolio investors can only participate in the commodity derivatives segment through cash-settled non-agricultural commodity derivative contracts and indices comprising such commodities.  Under the proposed framework, foreign portfolio investors would be allowed to take positions in deliverable non-agricultural commodity contracts but would have to unwind or roll over their open positions before the commencement of the tender or staggered delivery period. 

Sebi proposed a two-tier safeguard mechanism to ensure that foreign portfolio investors do not end up with delivery obligations. At the first stage, foreign portfolio investors would be expected to voluntarily square off or roll over their positions starting from T-3, where T is the start of the tender period. They would remain free to exit or roll over positions until the close of market hours on T-1.         

-PTI