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SEBI allows FPIs Direct Market Access to Commodity Derivatives

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In a significant move, SEBI has issued a circular allowing registered Foreign Portfolio Investors (FPIs) to participate in Exchange Traded Commodity Derivatives with direct market access. The circular permits FPIs to directly access the exchange trading system, eliminating the need for manual intervention by their brokers.

This change gives FPIs direct control over their orders, resulting in faster execution, reduced risks associated with manual order entry, and lower impact costs for large orders. FPIs can also implement better hedging and arbitrage strategies.

All these significant policy changes pertaining to the entry of institutional investors in the commodity derivatives segment have been introduced after the passage of the Finance Bill (2015). This represent a major policy shift because till 2016, institutional players were not allowed to participate in the commodity derivatives market, even though trading in commodity futures began in India in 2003. In June 2017, SEBI opened up the commodity derivatives markets to institutional investors for the first time by allowing hedge funds registered as category III Alternative Investment Funds (AIFs) to invest in commodity derivatives as ‘clients’. Subsequently, SEBI allowed participation of Foreign Portfolio Investors (FPIs) in Commodity Derivatives in IFSC, in September 2017.

The current move will lead to greater FPI participation and increased liquidity in India’s commodity market. Reader can see the enclosed SEBI circular for more information.

Readers can also share their views with the Regstreet Law Advisors at info@regsteetlaw.com

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