Sebi reviewing proposal to allow FPIs in non-cash, non-agri commodity derivatives, Pg 17.

Key Highlights:

• SEBI is reviewing a proposal to allow Foreign Portfolio Investors (FPIs) to trade in non-cash settled, non-agricultural commodity derivative contracts.
• The move aims to strengthen domestic commodity markets, with a committee formed to deepen the agricultural commodities segment.
• A working group will be constituted to develop the non-agricultural commodity space, including metals.
• Currently, FPIs can participate in commodity derivatives markets through non-deliverable and cash-settled contracts.
• FPIs daily trading volume in the commodities derivatives market on the Multi Commodity Exchange (MCX) is around Rs 15,000 crore.

Detailed Insights:

• The proposal, once finalized, is expected to attract more FPIs into the domestic commodity derivatives market, enhancing market participation.
• Non-agricultural commodity derivatives include precious, industrial, and base metals, expanding the investment options for FPIs.
• SEBI has already approved a proposal to introduce a single automatic window for foreign investors, streamlining the investment process.
• Despite this positive step, FPIs have been net sellers in the domestic market, offloading Rs 61,184 crore of equities since July this year.
• Allowing FPIs in non-cash settled derivatives could provide more hedging and trading opportunities, increasing liquidity in the market.

Key Concepts Involved:

• FPI (Foreign Portfolio Investor): An investor investing in financial assets of a country without directly managing them.
• Commodity Derivatives: Financial contracts whose value is derived from underlying commodities, used for hedging or speculation.
• Cash-Settled Contracts: Derivatives that are settled in cash rather than physical delivery of the underlying asset.