SEBI Plans Wider FPI Access To Non-Agri Commodity Contracts

The Securities and Exchange Board of India (SEBI) has proposed widening foreign portfolio investors' access to India's exchange-traded commodity derivatives market. The proposal covers physically settled contracts in non-agricultural commodities.

Foreign portfolio investors (FPIs) currently have access to cash-settled non-agricultural commodity derivatives and related indices. The new proposal could extend that access to contracts involving physical settlement, subject to an exit and position-transfer mechanism.

SEBI FPI Commodity Derivatives: What Is The Regulator Proposing?

Under the existing framework, FPIs can participate in cash-settled non-agricultural commodity derivatives and indices made up of such commodities. SEBI has now sought public comments on allowing them to trade non-cash-settled contracts as well.

The proposal covers commodities whose prices are closely linked to global markets, including crude oil, natural gas, gold, silver and base metals.

SEBI said wider FPI participation could increase the number of market participants and add liquidity and market depth. It also expects the move to improve price discovery and bring derivatives prices closer to the physical market prices.

The regulator said the proposal could also support greater integration between India's commodity derivatives market and international commodity markets.

Why Is SEBI Looking To Expand FPI Participation?

SEBI pointed to higher activity in some commodity contracts after foreign participation increased. Crude oil and natural gas options have seen a notable rise in liquidity, according to the regulator.

Overall open interest in the commodity derivatives market has also increased. SEBI said FPIs now account for a meaningful and growing share in the market, adding to trading depth.

The proposal also covers non-agricultural index derivatives. SEBI is seeking views on allowing FPIs to participate in such contracts regardless of whether the underlying contracts are cash-settled or physically settled.

The Commodity Derivatives Advisory Committee has backed this proposal and recommended that such participation be allowed.

Physical settlement, however, creates a separate issue. FPIs may not be able to take or make physical delivery because they do not have a permanent establishment in India. SEBI also noted that FPIs would need GST registration to buy or sell commodities in the country.

How Would The Proposed Safeguards Work?

SEBI has proposed a two-level mechanism to deal with open FPI positions in physically settled contracts near expiry. FPIs would have to square off or roll over positions before the tender period begins.

A compulsory exit would apply three days before expiry. If an FPI does not exit voluntarily, the open position would be transferred to a designated trading member (TM) or trading-cum-clearing member (TCM).

The transfer would take place at the exchange's closing price or daily settlement price.

After the transfer, the FPI would have no further right, obligation or exposure linked to that position, including the delivery process.

SEBI has also proposed a proprietary risk absorption charge for cases where a trading member has to take over an FPI's position. The charge would compensate the member for the proprietary risk, margin requirements and position-limit burden arising from the transfer.

The charge could be included in the onboarding agreement and would be separate from any service fee agreed for carrying out the transfer.

A trading member would get up to two trading days to bring a transferred position back within the applicable position limits if the transfer causes a breach.

SEBI issued the consultation paper on 11 August 2026 and has invited comments from stakeholders until 1 September 2026.

The proposal is therefore still at the consultation stage. The final rules, including the scope of eligible contracts and the operating safeguards, would depend on SEBI's consideration of the feedback received.

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