New Delhi, Sep 14: With an aim to deepen the commodity derivatives market, regulator Sebi is likely to consider a proposal to allow trading in this segment by foreign entities with exposure to the Indian physical commodity market.
Besides, the regulator may deliberate on the issue of introducing a common application form for foreign portfolio investors (FPIs) to enter into the domestic capital market as part of the exercise to improve ease of doing business.
Further, it is likely to discuss on the procedure of transmission of securities in physical mode, officials said.
The board of Securities and Exchange Board of India (Sebi) may discuss these issues in its meeting scheduled next week, they added.
With regard to the commodity derivatives markets, foreign entities may be allowed to hedge their exposures with derivatives trading in all commodities traded on Indian exchanges, barring the sensitive commodities
Under the proposal, the foreign entities, having actual exposure to Indian physical commodity markets, may be termed Eligible Foreign Entities (EFEs).
A detailed set of norms for eligibility criteria, disclosure and KYC requirements, code of conduct and safeguards against any unwanted price fluctuations has also been proposed.
According to the proposal, such EFE should not be an Indian resident but may be a Non-Resident Indian (NRI), provided that such NRI is engaged in physical commodity trading businesses with India.
The minimum networth requirement for such EFE should be USD 500,000 and this limit may be gradually reviewed based on experience of EFE participation in the market.
With regard to registration, as per the proposal, EFEs desirous of taking hedge positions in Indian commodity derivatives market should approach Authorised Stock Brokers (ASBs), from amongst the brokers which are registered under Sebi.
The exchanges should jointly frame guidelines regarding the eligibility criteria for ASBs approved by their risk management committees. Besides, an EFE needs to meet the Know Your Client (KYC) requirements.
The commodity derivatives exchanges need to put in place appropriate risk management systems for allowing EFE to take positions in eligible commodities as well as a mechanism to monitor the limits and physical exposure of an EFE, which may include seeking periodical reports.
The position limits should be governed by the hedge policy of the commodity derivatives exchanges and no separate client trading limits should be allowed for EFEs.
According to the proposal, such EFE should not be an Indian resident but may be a Non-Resident Indian (NRI), provided that such NRI is engaged in physical commodity trading businesses with India.
The minimum networth requirement for such EFE should be USD 500,000 and this limit may be gradually reviewed based on experience of EFE participation in the market.
