SEBI Proposes Wider FPI Participation In Non-Agricultural Commodity Derivatives

On 11 August, the Securities and Exchange Board of India (SEBI) proposed expanding Foreign Portfolio Investor (FPI) participation in Exchange Traded Commodity Derivatives (ETCDs) by allowing them to participate in non-agricultural index derivatives and non-cash-settled non-agricultural commodity derivatives.

Currently, FPIs can participate only in cash-settled non-agricultural commodity derivatives. Under the proposed framework, SEBI would allow FPIs to trade in non-agricultural index derivatives irrespective of whether the underlying contracts are cash-settled.

SEBI has also proposed allowing FPIs to participate in physically settled non-agricultural commodity derivatives to broaden market participation, improve liquidity and price discovery, and strengthen convergence between the derivatives and physical markets.

Under the proposal, FPIs would have to square off or roll over their positions before the tender period begins. If an FPI fails to do so, the open position would be transferred to the designated Trading Member or Trading-cum-Clearing Member.

The proposal would also require an onboarding agreement between the FPI and the relevant members. Exchanges would standardise the format and material terms of these agreements.

SEBI has further proposed a “Proprietary Risk Absorption Charge”, which may become payable by an FPI if its position is transferred because it failed to voluntarily square off or roll over the position. 

The Commodity Derivatives Advisory Committee has supported the proposals. SEBI has invited public comments on the proposals until 1 September 2026.