Capital markets regulator SEBI on Wednesday decided to allow foreign portfolio investors to participate in the exchange-traded commodity derivatives segment, a move that will further add depth and liquidity to the market. SEBI’s board during its meeting held on Wednesday also approved amendments to the rules governing mutual funds and portfolio managers.
In addition, it has approved amendments to the SECC Regulations provisions relating to Limited Purpose Clearing Corporations (LPCCs) for clearing and settlement of corporate bond repo transactions. In a significant move, Foreign Portfolio Investors (FPIs) will be allowed to trade in all non-farm commodity derivatives and select non-farm benchmark indices.
Initially, FPIs will be allowed only in cash-settlement contracts. “The participation of FPIs in the Exchange Traded Commodity Derivatives (ETCD) market is expected to promote liquidity and market depth as well as efficient price discovery,” SEBI said in a release after the board meeting.
The regulator has already allowed institutional investors such as Category III Alternative Investment Funds (AIFs), portfolio management services and mutual funds to participate in the ETCD market. The existing route, which required actual exposure to Indian physical goods, has been closed. Any foreign investor who wishes to participate in the Indian ETCD segment, with or without actual exposure to Indian physical goods, can do so through the FPI route.
Currently, foreign entities having actual exposure to the Indian commodity markets, known as Eligible Foreign Entities (EFE), are allowed to participate in the Indian commodity derivatives market. However, being financial investors with large purchasing power, FPIs were not allowed to participate in the ETCD segment.
Now, subject to certain risk management measures, FPIs will be allowed to participate in the Indian ETCD market. Further, a working group consisting of representatives of SEBI and market participants has been constituted to examine whether there is a need to prescribe any additional risk management measures for FPIs.
The status limit for FPIs other than individuals, family offices and corporate bodies will be equal to the limit currently applicable for mutual fund schemes. FPIs belonging to categories – individuals, family offices and corporates will be allowed a position limit of 20 per cent of the client level position limit in a particular commodity derivatives contract, similar to the position limit prescribed for currency derivatives.
“Effective date will be notified through a circular,” Securities and Exchange Board India (SEBI) said. Considering that there are currently around 10,000 FPIs registered in India, even though a tenth of them participate in the Indian commodity derivatives market, the same could bring considerable liquidity to the Indian ETCD segment.
Furthermore, their participation can help reduce transaction costs in the commodity futures segment due to economies of scale. Both EFE and FPI relate to participation of foreign entities with different nomenclature and status assigned to foreign investors.
SEBI’s board has also approved amendments to mutual fund rules to remove the applicability of the definition of “associate” to sponsors who invest in various companies on behalf of beneficiaries of insurance policies or such other schemes. In addition, it approved amendments to the rules for portfolio managers to increase prudential norms for investments by portfolio managers, including investments in associates and related parties.
The Board considered and approved the proposals to amend the provisions of the Securities Contracts (Regulation) (Stock Exchange and Clearing Corporation) Regulations to align the provisions of SECC Rules with the RBI Central Counter Party Directions. According to the release, with regard to the RBI’s directives for central counterparties and the requirements of the Payment and Settlement Systems Act (PSS Act) administered by the RBI, the board considered and approved certain proposals.
Over time, the LPCC will put in place a mechanism to manage risk to meet the net worth requirements under the PSS Act and infuse additional capital in a phased manner commensurate with the increase in trading volumes. Among other things, SEBI, in consultation with RBI, will review the outsourcing agreements of the LPCC for carrying out its core and critical IT support infrastructure/core activities – transaction processing, clearing and settlement – in respect of two or three years. Will do it later
The Board has also considered and approved SEBI’s Annual Report 2021-22 and the annual report will be submitted to the Central Government.
read all breaking news , today’s fresh news watch top videos And live TV Here.