SEBI Allows FPIs to Trade in Non-Agricultural Commodity Derivatives, Sets Strict Unwinding Rules
GS3Economy · S&T · Environment · Security· Capital markets & SEBI· Prelims·
Why in news
SEBI issued a circular allowing Foreign Portfolio Investors (FPIs) to trade in non-cash settled non-agricultural commodity derivatives to enhance market liquidity.
Background
SEBI permitted FPIs to participate in physically settled non-agricultural commodity derivative contracts. A two-tier safeguard mechanism requires FPIs to unwind positions before tender periods, with automatic transfers to Trading Members if voluntary square-off is not completed by T-3.
Facts for Prelims
- BodySEBI: Securities and Exchange Board of India, the regulator for securities and commodity markets.
- FactFPIs: Foreign Portfolio Investors are permitted to trade in non-cash settled non-agricultural commodity derivatives under the new framework.
- FactT-3 Rule: FPIs must voluntarily square off or roll over positions by the close of market hours on the day preceding the tender period, or face automatic transfer.
- FactCDAC: Commodity Derivatives Advisory Committee provided deliberations for this regulatory shift.
For Mains
Q. Discuss how deepening institutional participation in commodity derivatives can enhance price discovery and market liquidity in the Indian economy.
Dimensions to cover in your answer
- market depth
- price discovery
- risk mitigation
- regulatory oversight
Keywords: liquidity · price discovery · institutional participation · market depth · regulatory safeguards
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