The market regulator Securities and Exchange Board of India (SEBI) is likely to release a consultation paper on allowing foreign portfolio investors (FPIs) to participate in exchange-traded commodity derivatives, sources exclusively told CNBC-TV18 on Wednesday.
At present, eligible foreign entities (EFE) are allowed to participate in the commodity markets.
According to sources, SEBI has plans to allow FPIs into both non-agri and agri segments. The proposal allowing FPIs into the commodity market may be discussed in the SEBI board meet, they said.
The move to allow FPIs will deepen the commodities market further.
Commodity derivatives are investment tools that allow investors to profit from certain commodities without possessing them. One who buys the derivatives contract has the right to exchange a commodity for a certain price at a future date. They can buy or sell the commodity.
SEBI-appointed Commodity Derivative Advisory Committee (CDAC) had earlier in November given the nod for foreign entities to invest in commodity derivatives.
Narinder Wadhwa, President at Commodity Participants Association of India (CPAI), had said FPIs may be allowed to participate in precious metal and base metal initially, and later in selected agri contracts.
Wadhwa had then said FPIs being financial investors with huge purchasing power have not yet been allowed to participate in exchange-traded commodity derivatives (ETCD) as higher volatility may arise with the sudden entry and exit of such investors.
He had, however, assured that with checks and balances on exposure by exchanges, the regulator may permit such investors to trade in commodities.
"CPAI definitely will welcome this move of allowing FPIs to participate in commodities markets with relaxed norms," he said.
CDAC held a meeting on November 15, where the proposal to allow eligible foreign entities to invest in the commodity derivatives market was discussed. The CDAC aims at the development of the commodities market and to deepen the commodities market sphere.
Following the meeting, in an exclusive interview with CNBC-TV18 Wadhwa said, stakeholders discussed that more institutional participants like FPIs, banks, pension funds, and insurance companies should also be allowed to participate in the market.
“As a participant, we put out our view that we are in favour of having FPIs in the market, definitely with certain restrictions, and most of the members were of the same view. I hope that this approval in the CDAC will go through and it will be put up at the next board meeting of SEBI,” Wadhwa said on November 16.
–With PTI inputs