Sebi allows foreign entities to hedge commodity exposure via derivatives

Capital markets regulator Securities and Exchange Board of India (Sebi) on Tuesday allowed foreign entities to participate in the commodity derivatives segment of stock exchanges for hedging their exposure.

In a letter addressed to the managing directors and chief executive officers all recognised stock exchanges and clearing corporations with commodity derivatives segment, Sebi said: “Currently, foreign entities are not permitted to directly participate in the Indian commodity derivatives market, even if they import/export various commodities from/to India. Such entities by virtue of their actual exposure to the various commodities in Indian market, are valuable stakeholders in the value chain of such commodities, and are also exposed to price uncertainty of Indian commodity markets. Therefore, these foreign entities should be enabled to hedge their price risk in the Indian commodity derivatives market.” 

Taking cognizance of the fact that participation by foreign participants would be conducive for the overall development of the commodity derivatives market in India, the market regulator had on May 18 this year issued a consultation paper to discuss the suitable framework for allowing foreign participants to hedge their commodity exposure. 

“Pursuant to feedback received from the market participants during the consultative process, it has been decided to permit foreign entities having actual exposure to Indian commodity markets, to participate in the commodity derivatives segment of recognised stock exchanges for hedging their exposure. Such foreign entities shall be known as ‘Eligible Foreign Entities’ (EFEs),” Sebi said.