Sebi to allow mutual funds, PMS to participate in commodity futures
Sebi allows FPIs in non-agri commodity derivatives in Gift IFSC
Three months after markets regulator the Securities and Exchange Board of India (Sebi) allowed Category III alternative investment funds (AIFs) in commodity derivatives, it has granted permission to foreign portfolio investors (FPIs) to trade in non-agricultural commodities in GIFT City International Financial Services Centre. No decision has been taken yet on allowing FPIs to trade on commodity exchanges in the domestic market.
Sebi said in a circular on Tuesday that based on representations received from the exchanges operating in the International Financial Services Centre (IFSC) and after consultations with the government of India and the Reserve Bank of India (RBI), it had been decided that FPIs shall be permitted to participate in commodity derivatives contracts traded on stock exchanges in the IFSC. FPIs, however, are allowed to trade in non-agricultural commodities with restrictions such as cash settlement based on the price determined on overseas exchanges. The transactions shall be denominated in foreign currency only.
“The overall derivatives (equities and commodities) volume at an estimated Rs 130 lakh crore in the domestic market constitutes around half of India’s gross domestic product (GDP) compared to two to five times of GDP in developed countries. Commodities contribute a very small portion of that. Hence, we have miles to go. After merger of the Forward Markets Commission (FMC) with Sebi, we have allowed Category III hedge funds in commodities and there is a need to allow more institutional players. We require product, participation and policy, which we will go about in a calibrated manner. But we want institutional players, which currently hedge their commodity risks on global exchanges, to look at domestic platforms. We are in the process of making enabling provisions to allow them to trade on domestic exchanges,” said S K Mohanty, executive director, Sebi.
While Sebi has allowed options trading in gold on MCX and guar on NCDEX, the regulator is in advanced stages of discussions to allow mutual funds and portfolio management services (PMS) in commodities.
Confirming the development, Mohanty said the regulator was in the process of drafting guidelines for allowing mutual funds and PMS in commodity derivatives, which might be completed in six months. Talking about agricultural commodities, Mohanty said the convergence between the spot and future markets was a big issue. To address the issue, the government has set up an electronic National Agricultural Market (eNAM). Also, the food ministry has launched two repositories and the Warehousing Development and Regulatory Authority (WDRA) is looking at non-agricultural commodities.
Normally, institutional investors look at broader market participation with liquidity in both short-term and long-term contracts. In India, however, long-terms contracts see minuscule volumes across all contracts and in all commodities. Indian traders normally prefer futures trading in short-term contracts.
Stepping ahead to attract liquidity in long-term contracts, as happens globally, Thomson Reuters has introduced commodity indices of various categories in association with MCX.
“The launch shows our preparedness for indices trading as and when they are allowed by the regulator; and also to help institutional investors to look at Indian exchanges for trading,” said Mrugank Paranjape, managing director, MCX. The exchange is all set to launch option contracts shortly.
MCX is poised to set up its own clearing corporation by the first quarter of next year.
The Business Standard, New Delhi, 27th September 2017
Three months after markets regulator the Securities and Exchange Board of India (Sebi) allowed Category III alternative investment funds (AIFs) in commodity derivatives, it has granted permission to foreign portfolio investors (FPIs) to trade in non-agricultural commodities in GIFT City International Financial Services Centre. No decision has been taken yet on allowing FPIs to trade on commodity exchanges in the domestic market.
Sebi said in a circular on Tuesday that based on representations received from the exchanges operating in the International Financial Services Centre (IFSC) and after consultations with the government of India and the Reserve Bank of India (RBI), it had been decided that FPIs shall be permitted to participate in commodity derivatives contracts traded on stock exchanges in the IFSC. FPIs, however, are allowed to trade in non-agricultural commodities with restrictions such as cash settlement based on the price determined on overseas exchanges. The transactions shall be denominated in foreign currency only.
“The overall derivatives (equities and commodities) volume at an estimated Rs 130 lakh crore in the domestic market constitutes around half of India’s gross domestic product (GDP) compared to two to five times of GDP in developed countries. Commodities contribute a very small portion of that. Hence, we have miles to go. After merger of the Forward Markets Commission (FMC) with Sebi, we have allowed Category III hedge funds in commodities and there is a need to allow more institutional players. We require product, participation and policy, which we will go about in a calibrated manner. But we want institutional players, which currently hedge their commodity risks on global exchanges, to look at domestic platforms. We are in the process of making enabling provisions to allow them to trade on domestic exchanges,” said S K Mohanty, executive director, Sebi.
While Sebi has allowed options trading in gold on MCX and guar on NCDEX, the regulator is in advanced stages of discussions to allow mutual funds and portfolio management services (PMS) in commodities.
Confirming the development, Mohanty said the regulator was in the process of drafting guidelines for allowing mutual funds and PMS in commodity derivatives, which might be completed in six months. Talking about agricultural commodities, Mohanty said the convergence between the spot and future markets was a big issue. To address the issue, the government has set up an electronic National Agricultural Market (eNAM). Also, the food ministry has launched two repositories and the Warehousing Development and Regulatory Authority (WDRA) is looking at non-agricultural commodities.
Normally, institutional investors look at broader market participation with liquidity in both short-term and long-term contracts. In India, however, long-terms contracts see minuscule volumes across all contracts and in all commodities. Indian traders normally prefer futures trading in short-term contracts.
Stepping ahead to attract liquidity in long-term contracts, as happens globally, Thomson Reuters has introduced commodity indices of various categories in association with MCX.
“The launch shows our preparedness for indices trading as and when they are allowed by the regulator; and also to help institutional investors to look at Indian exchanges for trading,” said Mrugank Paranjape, managing director, MCX. The exchange is all set to launch option contracts shortly.
MCX is poised to set up its own clearing corporation by the first quarter of next year.
The Business Standard, New Delhi, 27th September 2017
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