SEBI-appointed Commodity Derivatives Advisory Committee (CDAC) favours allowing eligible foreign investors to invest in the commodity derivatives segment. It had discussed the issue in detail during its recent meeting, according to sources. The proposal may be taken up by SEBI at its board meeting.
In 2018, SEBI allowed eligible foreign entities to trade to the extent of their exposure in physical commodities.
Although the response was lacklustre from foreign investors, it was taken up for discussion at a CDAC meeting and members suggested removing the current restrictions to expand their participation, with some checks and balances to deepen the commodity derivatives markets, the sources said.
Recent ban discussed
Overall commodity derivatives market depth will increase if some of the conditions are removed. Foreign portfolio investors may be allowed to participate both in metals and non-agriculture commodities, including agriculture commodities, which are not sensitive. The recent ban on some agriculture commodities was also discussed at the CDAC meeting with a detailed presentation by an official of the National Commodity & Derivatives Exchange (NCDEX). In August, SEBI banned launch of fresh futures contract in chana and followed it up with a similar ban on trading in rapeseed-mustard in October to prevent speculative trade pushing up prices in the spot market.
“We feel the recent ban has dampened the sentiments of all commodity market participants, specially the institutional participants, as they do not want uncertainties of sudden withdrawal of contracts and inconsistent policies,” said Narinder Wadhwa, President, Commodity Participants Association of India.