SEBI Panel Recommends Phased FPI Entry Into Commodity Derivatives, Backs Cash Settlement

A panel appointed by the Securities and Exchange Board of India (SEBI) has recommended allowing Foreign Portfolio Investors (FPIs) to participate in the Indian commodity derivatives market in a phased manner, with a strong preference for cash-settled contracts. This approach aims to ensure market stability and effective risk management as FPI participation is introduced. Cash settlement is favored because it avoids the complexities and risks associated with the physical delivery of commodities, making it easier for foreign investors to participate.

The move is expected to increase liquidity and improve price discovery in the commodity derivatives market, broadening the investor base in line with global practices. However, the recommendations also stress the importance of robust regulatory oversight, including position limits, disclosure requirements, and monitoring mechanisms, to prevent excessive speculation and maintain market integrity.

SEBI initially brought commodity derivatives trading under its regulatory purview in 2015. The panel’s recommendations represent ongoing efforts to expand and modernize India’s financial markets while upholding necessary safeguards. A final decision regarding the implementation timeline and framework will follow further consultations and review by SEBI.

(Source：5paisa)