Russian investors eye Indian bourses to trade in US energy basket

Interest comes days before the launch of NYMEX WTI Crude Oil and Natural Gas (Henry Hub) derivatives contracts by NSE

Foreign portfolio investors (FPIs) domiciled in Russia may use the Indian markets to gain exposure to the US energy basket in order to sidestep the strict sanctions imposed on them, according to people in the know. 

Starting Monday, the National Stock Exchange (NSE) will commence trading in the NYMEX WTI Crude Oil and Natural Gas (Henry Hub) derivatives contracts, which are among the world’s most traded commodity derivatives contracts.

Typically, Russian investors don’t have easy access to these derivative instruments. However, as some of them are registered as FPIs in India, they can freely participate in the domestic commodities market.

According to the registration data from National Securities Depository Ltd (NSDL), the three entities from Russia — two categories from Alpha Capital Management Company and one from Vsevolod Rozanov — have recently registered in India.

Sources said many more institutional investors based out of Russia were in the process of getting registered as FPIs in India as they considered energy derivative products as opportunities for hedging and to gain from volatility in the energy segment.

“Many Russian entities, especially FPIs and commodity participants, don’t have access to other global avenues to trade and transact in such liquid exchange-traded derivatives of energy basket. This is due to [international] sanctions and the global situation right now. There has been a lot of interest from such entities as they are engaging with the top exchange for such products,” said a source.

The NSE has entered a data licensing agreement with the US-based CME Group, the world’s largest derivatives marketplace, to launch this product domestically. Derivatives contracts will, however, be traded in the Indian rupee and will be cash settled. NSE Clearing, the clearing corporation arm of the NSE, will handle clearing and settlement.

Industry players say domestic exchange-traded commodity derivatives (ETCDs) have reached an inflection point due to the regulatory changes in the past few years.

In September 2022, Sebi allowed FPIs’ participation in the cash-settled non-agricultural commodity derivatives contracts and indices. To boost participation, Sebi has also allowed the stock exchanges to offer direct market access for ETCDs to FPIs.

Industry players say the launch of the NYMEX WTI Crude Oil and Natural Gas (Henry Hub) derivatives contracts will have a wider appeal and not just cater to FPIs belonging to one particular jurisdiction.

“India has a vibrant list of FPIs. Energy derivatives contracts are the most-traded globally. Investors across geographies prefer spreading their bets across multiple trading venues to get the benefit of the time zone as also to explore anomalies in pricing,” said an official.