MUMBAI : International portfolio traders (FPIs) can take part within the trade traded commodity derivatives (ETCDs) market topic to sure danger administration measures, the Securities and Trade Board of India (Sebi) determined at its board assembly on Wednesday.
The regulator has arrange a working group comprising its representatives and market members to find out whether or not any new danger administration regulation for FPIs is important.
The strikes come after the regulator in February floated a dialogue paper with respect to permitting FPIs in ETCDs, after FPIs and custodians expressed sturdy curiosity in taking part in them.
FPIs might be allowed to commerce in all non-agricultural commodity derivatives and choose non-agricultural benchmark indices, Sebi mentioned. Initially, they are going to be allowed solely in cash-settled contracts.
“We welcome the choice of Sebi to permit overseas entities to take part within the Indian Trade Traded Commodity Spinoff market by the FPI route. Although they restricted the participation to solely non-agriculture and cash-settled contracts for now, it might be a small step in direction of increasing the attain of our markets. As India grows as an financial behemoth, it is very important combine our commodity markets with world markets. Thus, this step opens up the gates at no cost movement of capital and ease of buying and selling by foreigners, which is able to scale back pricing gaps and would assist improve the liquidity in our markets,” mentioned Kishore Narne, head, commodities and currencies, Motilal Oswal Monetary Companies Ltd.
Permitting FPIs to take part in ETCDs is prone to enhance depth and liquidity in commodity spinoff markets, the capital markets regulator mentioned. Enhanced liquidity can regularly allow the Indian commodity spinoff market to function a worldwide benchmark for commodities and thus make India a worth setter as an alternative of being a worth taker, Sebi mentioned.
The beforehand used Eligible International Entity (EFE) technique has been terminated because it wanted real publicity to Indian bodily items, Sebi mentioned. International traders might take part in Indian ETCDs by the FPI route, with or with out precise publicity to Indian bodily commodities, it mentioned.
The regulator has already applied the participation of class III alternate funding funds (AIFs), portfolio administration companies, and mutual funds in commodities markets.
Just like the place restrictions set forth for foreign money derivatives, FPIs belonging to the classes of individuals, household places of work, and firms might be permitted a place restrict of 20% of the client stage place restrict in a particular commodity derivatives contract, the regulator mentioned.
While there have been apprehensions that opening up the trade traded commodities derivatives section for FPIs might result in loads of volatility, it may be argued that such participation with satisfactory checks and balances put in place (by satisfactory danger administration measures as contemplated) will improve market’s skill to soak up comparatively giant orders with out considerably impacting the value – thereby growing liquidity, and also will assist in environment friendly worth discovery, mentioned Gaurav Mistry, Associate, DSK Authorized.
Supply: Live Mint