Mumbai (Maharashtra) [India], September 24 (ANI): The Securities and Exchange Board of India (SEBI) on Thursday approved allowing Foreign Portfolio Investors (FPIs) to participate in a wider set of exchange-traded commodity derivatives, with a T-3 day safeguard that requires FPIs to exit their open positions three days before contract expiry to avoid physical delivery obligations.
The decision was taken at the SEBI Board meeting chaired by SEBI Chairman Tuhin Kanta Pandey and is aimed at deepening liquidity in the commodity derivatives market.
Under the new framework, FPIs will be permitted to participate in non-agricultural index derivatives contracts, irrespective of whether the underlying contract is cash-settled or not.
They will also be allowed to participate in non-cash-settled non-agricultural commodity derivatives contracts.
However, SEBI has put in place a specific safeguard for contracts where physical delivery could arise. FPIs will have to exit their positions before the Tender Period begins, which is three days before the expiry of the contract, or T-3.
“As an additional safeguard, FPIs shall not be permitted to increase their positions from T-3 day,” SEBI said in its Board meeting decisions.
The mechanism is intended to ensure that FPIs do not remain exposed to a delivery obligation in non-cash-settled commodity derivative contracts.
Under the framework, FPIs will agree with the trading member/trading-cum-clearing member before being enabled to trade on exchanges.
The agreement will specify how the FPI’s positions will be handled, including squaring off the positions or transferring the residual open positions to the trading member/trading-cum-clearing member before the Tender Period begins.
The transferred positions will be handled at the closing price or daily settlement price declared by the exchange on the day of transfer, according to SEBI’s decision.
The regulator also clarified that such transfer of an open position from an FPI to the trading member or trading-cum-clearing member would be considered a trade, with applicable statutory levies.
SEBI’s decision expands the scope of FPI participation beyond the existing framework. The regulator had earlier permitted FPIs to participate in cash-settled non-agricultural commodity derivatives and indices comprising such commodities.
The move follows SEBI’s consultation process on FPI participation in exchange-traded commodity derivatives. The regulator had issued a consultation paper on the issue in August 2026.
The broader access for FPIs is expected to provide foreign investors with more avenues to participate in India’s commodity derivatives market, while the T-3 mechanism provides a safeguard against delivery-related exposure. (ANI)
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