SEBI permits FPIs to participate in exchange traded commodity derivatives market – EFEs mechanism discontinued

In continuation of the decision taken at SEBI board meeting dated June 29, 2022 (available here) to allow Foreign Portfolio Investors (FPIs) to participate in Exchange Traded Commodity Derivatives (ETCDs) market, SEBI has now laid down conditions for participation of FPIs in ETCDs. With this, the existing EFE (Eligible Foreign Entities) route for participating in ETCDs has been discontinued.

Salient features for participation of FPIs in ETCDs are as under:

• • Trading in non-agricultural commodity derivative: To begin with, FPIs will be allowed to participate in cash settled non-agricultural commodity derivative contracts and indices comprising such non-agricultural commodities.

• • FPIs to be subject to risk management measures: FPIs desirous of participating in ETCDs shall be subject to risk management measures applicable from time to time.

• • Position Limits for participation of FPIs in ETCDs:

-FPIs other than individuals, family offices and corporates may participate in eligible commodity derivatives products as ‘Clients’ and shall be subject to all rules, regulations and instructions, position limit norms as may be applicable to clients, issued by SEBI and stock exchanges, from time to time.

-FPIs belonging to categories viz. individuals, family offices and corporates will be allowed position limit of 20% of the client level position limit in a particular commodity derivative contract.

• • Compliance with SEBI regulations: The participation of FPIs including individuals, family offices and corporates shall be subject to compliance with the provisions of SEBI (Foreign Portfolio Investors) Regulations, 2019, SEBI (Custodian) Regulations, 1996 and other applicable SEBI circulars on ETCDs.

• • Stock Exchanges/Clearing Corporations may lay down additional requirements: Stock Exchanges/Clearing Corporations may specify additional safeguards/conditions, as deemed fit, to manage risk and ensure orderly trading in ETCDs.

The aforesaid changes have been made vide SEBI Circular dated September 29, 2022 (available here).

 We trust you will find this an interesting read. For any queries or comments on this update, please feel free to contact us at insights@elp-in.com or write to our authors:

Manendra Singh, Associate Partner –ManendraSingh@elp-in.com;
Tanvi Goyal, Principal Associate –TanviGoyal@elp-in.com

Disclaimer: The information contained in this document is intended for informational purposes only and does not constitute legal opinion or advice. This document is not intended to address the circumstances of any individual or corporate body. Readers should not act on the information provided herein without appropriate professional advice after a thorough examination of the facts and circumstances of a situation. There can be no assurance that the judicial/quasi-judicial authorities may not take a position contrary to the views mentioned herein.