You are here: Home » Markets » News
Business Standard

Foreign companies get Sebi nod to hedge in commodity derivatives

Sensitive commodities excluded from rule; move seen positive for segment

Topics
Commodity Derivatives  |  Sebi  |  Derivatives Trading

Rajesh Bhayani  |  Mumbai 

Sebi. (Photo: Kamlesh Pednekar)
Sebi. (Photo: Kamlesh Pednekar)

The Securities and Exchange Board of India (Sebi), in its board meeting on Tuesday, decided to allow foreign companies having exposures in the Indian commodity market to hedge their positions in derivatives.

The decision was taken after consultation with the ministry of finance and the Reserve Bank of India (RBI). However, they will not be allowed to hedge their exposures in sensitive commodities. will also not be permitted in commodities they don’t have exposure in. This may differ from company to company.

has clarified that hedging cannot be for a period longer than their physical market exposure. Foreign entities that don’t have exposure in India’s physical market will also not be allowed.

The regulator identifies sensitive commodities based on those that face regular interventions by various agencies, such as changes in import-export norms, stock limits and similar interventions, and those in which market manipulation was noticed over the past few years.

This means sugar and pulses futures are ruled out for foreign firms. However, according to experts in regulatory areas, cotton, edible oils, guar gum, spices like black pepper, and rubber are among those that will attract foreign participants.

Commodity expert Vijay Sardana said: “This is a positive move for development of the Indian commodity derivative segment. This will bring participation of foreign companies. Better risk management tools will also bring in more foreign investments to India.”

Currently, many firms with a foreign company tag —listed or not — having equity investments from foreign private equities, were uncertain as to whether they could hedge their India commodity price risks on the exchanges. It has been clarified they can do so. Apart from the agri segment, several auto components, metals, and textiles firms will also be able to hedge, said an industry source. There will be a separate category for “Eligible Foreign Entities” in this regard. They will be residents outside India. Required net worth for them to hedge in will be $500,000. chairman said the move is likely to increase volumes, depth and liquidity in

On the issue of universal exchange or allowing stock and commodity exchanges in each other’s areas, Tyagi said, “Stock exchanges have applied for universal exchange (launching trading in commodity derivatives), we will soon take a view on this.”

has also cut regulatory fee for exchanges in Agri segment from slab-wise volume based to just flat Rs 100,000. Exchanges have to use fees for gone by sebi for promoting farmers and their organisation hedging their risk on exchanges.”

Dear Reader,


Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Wed, September 19 2018. 01:31 IST
RECOMMENDED FOR YOU
.