Market participants have backed market regulator’s proposal to allow Foreign Portfolio Investors (FPIs) to trade physically settled non-agricultural commodity derivatives, but have flagged gaps in the proposed delivery and settlement mechanism, particularly the plan to transfer residual positions to domestic brokers.
The industry and market participants have urged the Securities and Exchange Board of India (SEBI) to ensure that market-based square-off or rollover remains the primary exit route, with transfer to a designated trading or clearing member used only as a last-resort backstop.
SEBI, in a consultation paper issued on August 11, proposed allowing FPIs to participate in non-agricultural commodity derivatives, including physically settled contracts such as gold, silver, copper and other base metals.
The move is aimed at widening foreign participation, deepening liquidity and improving price discovery in India’s commodity derivatives market.
In its comments to SEBI, the IMC Task Force on Capital Markets, headed by former MCX MD and CEO Mrugank Paranjpe, said the mandatory square-off or rollover requirement should remain the main mechanism for an FPI to exit an expiring contract. Transferring a residual position to a designated trading member or trading-cum-clearing member should only be an emergency backstop and should not replace voluntary or market-based exit options.