Securities and Exchange Board of India (SEBI) Chairman Tuhin Kanta Pandey on Wednesday said a proposal to permit foreign portfolio investors (FPIs) to trade in non-cash settled, non-agricultural commodity derivative contracts is currently being reviewed.
With an aim to strengthen the domestic commodity markets, he said that Sebi has already constituted a committee to recommend measures for deepening the agricultural commodities segment. A working group for developing the non-agricultural commodity space, including metals, will be constituted, the chairman said.
“A proposal to allow FPIs to trade in non-cash settled non-agricultural commodity derivative contracts is currently under examination,” Pandey said at an event organised by MCX. He released a report on ‘Industrial Strength: Financial Depth – Base Metals Derivatives Serving a ₹20 Trillion Market’ by MCX.
At present, FPIs can participate in commodity derivatives markets through non-deliverable and cash-settled contracts. In the commodities derivatives market, non-deliverable and cash – settled contracts are derivatives which, on expiry, do not result in a physical delivery of a commodity. The non-agricultural commodity derivatives include precious, industrial and base metals.
Once finalised, the move is likely to attract more FPIs into the domestic commodity derivatives market. The announcement comes days after the Sebi board approved a proposal to introduce a single automatic window for foreign investors. FPIs have been on a selling spree in the domestic market, offloading Rs 61,184 crore of equities since July this year.
On the Multi Commodity Exchange (MCX), FPIs’ daily trading volume in the commodities derivatives market currently is around Rs 15,000 crore. Following the Sebi Chairman’s announcement, MCX share price jumped over 5 per cent during intraday trades. The commodity derivatives exchange’s share closed at Rs 7,923 apiece, up 3.63 per cent, on the NSE.
Commenting on the development, said Anand Rathi group’s director (commodity, currency and Gift City, IFSC), Naveen Mathur, said, “Although a framework has to be developed for FPIs to participate in the non-agricultural, non-cash settled derivatives market, the proposal by Sebi is a welcome step in broadening of commodity derivatives market, which is the need of an hour.”
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The strategic push to develop the Indian commodity derivatives market would surely help India to be price-setter and not a price-taker, he said.
The Sebi Chairman further highlighted the regulator’s multi-pronged strategy to deepen and widen participation in commodities market. He said that domestic markets are for large corporations, traders, importers, and SMEs. They are also available for institutional investors like mutual funds and (alternative investment funds (AIFs), who are increasingly recognizing metals as an asset class that improves risk-adjusted returns for investors
“Enhanced institutional participation will bring in higher liquidity, making the market more attractive for hedging. We will keep working towards a regulatory framework to enable prudent institutional access to these markets,” he said.
The chairman also said that Sebi will engage with the government to consider banks, insurance companies, and pension funds to trade in the commodities market.
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He said in order to foster market development and innovation, Sebi will encourage exchanges to constantly evolve.
“By December 2025 end, we will include commodity-specific brokers in the Samuhik Prativedan Manch, a common reporting mechanism for compliance reports. This will ease their compliance requirements,” he said.
The regulator will continue to engage with the government to resolve goods and services tax (GST) related challenges for participants who wish to receive or deliver commodities through the exchange platform, Pandey stated.