The Securities and Exchange Board of India (SEBI) has released a proposal to broaden the participation of foreign portfolio investors (FPIs) in India's commodity derivatives market. If approved, overseas investors will be allowed to trade in physically settled contracts linked to crude oil, natural gas, gold, and silver, which are currently off-limits to them.
At present, FPIs can only participate in commodity derivative contracts that are settled in cash. SEBI said the existing restrictions stem from operational issues, including the requirement for foreign investors to obtain Goods and Services Tax (GST) registration and the inability to take physical delivery of commodities in India.
To address these concerns, SEBI has proposed a mechanism requiring FPIs to square off or roll over their positions at least three days before contract expiry. If they fail to do so, their positions would automatically be transferred to designated trading members, ensuring that foreign investors do not enter the physical delivery process.
According to SEBI, allowing wider foreign participation will enhance liquidity, strengthen price discovery, and bring India's commodity derivatives market closer to global practices. The regulator noted that investors in countries such as the United States, China, Japan, and several European nations already participate in physically settled commodity derivatives, making India's current restrictions an exception.
The regulator has invited public comments until September 1. After reviewing stakeholder feedback, SEBI is expected to finalize the new regulations within the next few months, provided there are no major objections.
