Sebi board may clear proposal allowing foreign entities in commodity markets

NEW DELHI: With an aim to deepen the commodity derivatives market, regulator Sebi’s board is likely to approve a proposal to allow trading in this segment by foreign entities with exposure to the Indian physical commodity market.

Such foreign entities may be allowed to hedge their exposures with derivatives trading in all commodities traded on Indian exchanges, barring the sensitive commodities.

The board of Securities and Exchange Board of India (Sebi) may approve a proposal in this regard in its meeting scheduled next week, officials said.

Under the proposal, foreign entities, having actual exposure to Indian physical commodity markets, may be termed Eligible Foreign Entities (EFES).

A detailed set of norms for eligibility criteria, disclosure and KYC requirements, code of conduct and safeguards against any unwanted price fluctuations has also been proposed.

The direct participation of foreign entities having actual exposure to commodities is expected to make Indian commodity derivatives market more broadbased, vibrant, deep and efficient.

Further, it will also add to the depth and liquidity in the far-month contracts.

The regulator, in May, came out out with consultation paper for allowing trading in the commodity derivatives market by EFES and had sought comments from all the stakeholders in this regard.

The proposal followed recommendation from the regulator’s Commodity Derivatives Advisory Committee (CDAC) for allowing in this market the hedge funds (category III alternative investment funds), portfolio management service (PMS) firms, mutual funds and direct participation of foreign participants having exposure to commodities in the first phase.

In the second phase, CDAC proposed to allow banks, insurers, foreign portfolio investors and pension funds in the commodity derivatives market.