Sebi board to clear FPI entry into derivatives

 The Securities and Exchange Board of India (SEBI)at its board meeting , likely to decide to clear the decks for  foreign portfolio investors ( FPIs)  participation in the exchange traded commodity derivatives segment. The aim was to aim at boosting liquidity and efficiency bourses, though concerns remain if this can make markets volatile. The board is also likely to clear its annual accounts- a precursor to presenting its annual report before parliament next month. This is the second board meeting under the current Chairperson Madhabi Puri Buch, who took over the charge in march.

At present, institutional investors such as Mutual Funds (MFs) and alternative investment funds participate only in derivatives market. However they contribute less than 15 per cent , but comprises the bulk of volumes generated by proprietary trading ( a financial firm or commercial bank that invests for direct market gain rather than earning commission dollars by trading on behalf of clients). Earlier sebi had allowed so-called eligible foreign entities (EFFs) to participate in the Indian commodity derivatives market only to the extent of hedging their exposure. An EFE was defined as a person resident outside India as defines in the Foreign Exchange Management Act, having actual exposure to Indian physical commodity markets with a minimum a net worth of $500000. A number of commodity exchanges have been onboarded the exchanges so far, but due to the restrictive  regulatory framework , the participation of these entities has been nil. Sources say that the framework will be far more flexible. For one, they will be permitted to take naked exposure, doing away with the condition of having actual exposure of physical commodities. The position limits for FPIs will be similar to those applicable to MFs.  Sources added that FPI entry will be in a graded manner, they will be in permitted in commodities with minimal sensitivity and considerable volumes. Popular non-agricultural commodity derivatives where FPIs could be allowed, are gold, silver, crude oil, Natural gas, Aluminum, Copper . Lead, Nickel, Zinc.