SEBI has proposed that Foreign Portfolio Investors (FPIs) be allowed to trade non‑agricultural commodity derivatives, including physically settled contracts, on domestic exchanges. The proposal is subject to a set of safeguards designed to protect the market.
The main goal is to deepen institutional participation, improve liquidity, and strengthen price discovery in India’s commodity derivatives market. It will also help the derivatives market converge more closely with the physical markets.
At present, FPIs can only trade cash‑settled non‑agricultural commodity derivatives and indices. They are not allowed to take positions in deliverable contracts.
Under the new framework, FPIs could take positions in deliverable non‑agricultural commodity contracts. However, they would have to unwind or roll over their positions before the tender or staggered delivery period begins.
SEBI has introduced a two‑tier safeguard mechanism. First, FPIs must voluntarily square off or roll over positions starting from T‑3, where T is the start of the tender period.
If an FPI fails to unwind or roll over, the open position is automatically transferred to a designated Trading Member or Trading‑cum‑Clearing Member at the closing price. After the transfer, the FPI has no rights or obligations related to the position.
The designated member can adjust the transferred position within two trading days to keep it within applicable limits. Any excess positions are not treated as a violation solely because of the transfer.
Clearing members are also barred from taking or clearing trades that increase an FPI’s near‑month deliverable position on T‑1.
To cover the risk taken by the member, SEBI allows a pre‑agreed Proprietary Risk Absorption Charge to be paid by the FPI at onboarding.
SEBI says the move will broaden the participant base, enhance liquidity, improve price discovery, and help integrate India’s commodity markets with global ones.
The regulator has invited public comments on the proposals until September 1.
In the market, MCX shares rose 1.8% to Rs 2,948 on Tuesday. JPMorgan upgraded the stock to “overweight” and raised the target price to Rs 3,500. Jefferies also gave a “buy” call with a target of Rs 3,600.
Analysts expect the new rules to increase MCX’s average daily trading volume by up to 14% in FY28/29 and boost options volume by 10% over two years.
The proposed framework is similar to the post‑close trading window in equities, but uses a system‑driven transfer at the exchange’s closing price.
SEBI also suggested that exchanges standardise onboarding agreements to ensure consistent safeguards and disclosures for FPIs.