India on Thursday allowed foreign investors to trade in physically settled non-farm commodity contracts, widening their access to commodity derivatives market as it looks to increase liquidity and better align with global counterparts.
The Securities and Exchange Board of India also allowed India-based portfolio managers to manage global assets and invest in overseas and to-be-listed securities, in step with the government's drive to attract overseas fund management activity.
The markets regulator at its board meeting also approved changes to its settlement rules for regulatory violations and expansion of vault managers' framework.
Move to boost trading volumes
Overseas investors currently cannot participate in contracts linked to crude oil, natural gas, gold or silver if they are settled by actual delivery of the underlying goods, largely due to operational constraints.
"We had been getting representations from exchanges and market participation to widen participation for Foreign Portfolio Investors in non-agri commodities," SEBI Chairman Tuhin Kanta Pandey said at a press meet.
SEBI said it has approved foreign investors to square-off or roll-over positions at least three days before contract expiry.
Any positions left open would be automatically transferred to designated trading members, preventing overseas investors from entering the delivery process.
The move is expected to boost bullion trading volumes by facilitating foreign investor participation and aligning India with other major markets.
Since foreign investors were allowed into cash-settled commodity derivatives in 2022, liquidity in crude oil and natural gas options has risen significantly. They accounted for a growing share of open interest, regulatory data showed.
Step to bring global fund management onshore
Last month, the government amended its tax laws to shield offshore investment funds from Indian tax liabilities when they route investments through India-based fund managers.
To facilitate onshore global fund activity, SEBI is now allowing registered portfolio managers to manage and advise overseas funds investing in foreign securities.
The regulator further widened permissible activities for portfolio managers by approving a new mutual fund-only category with lower entry barriers for investors and managers.
Mutual fund would include direct plans, index funds and specialised investment funds, SEBI said.
Other major decisions
The regulator decided to rationalise settlement fees for violations without admission of guilt. It allowed settlement of financial misstatements or fund diversion, subject to disclosure of allegations and restoration of diverted funds with interest.
It also extended the rules that govern vault managers to cover all physically settled bullion underlying SEBI-regulated products.
