Sebi in talks on allowing mutual funds in commodity derivatives trading
Mumbai: The market regulator is in advanced stages of talks on allowing mutual funds and portfolio management services (PMS) to trade in commodity derivatives.
“We are in advanced stages of discussions; however I am not committing a timeline,” said S.K. Mohanty, executive director of the Securities and Exchange Board of India (Sebi), said at an industry event on Tuesday.
Sebi has initiated discussions with the industry lobby Association of Mutual Funds in India (Amfi), which has already submitted a report to the market regulator.
“Amfi has submitted its recommendations to the Sebi committee on commodity derivatives. This includes prudential norms and having caps on exposure levels,” said a person close to the development on condition of anonymity.
The regulator also met around 20 PMS managers earlier this month to get a sense of how they can be a part of commodity markets, he added.
“We expect the mutual funds and PMS to be allowed by the end of this fiscal,” said Mrugank Paranjape, CEO, Multi-Commodity Exchange Ltd.
One product the industry has proposed is a gold Exchange Traded Fund (ETF).
“This is an ideal product and will also take care of the Rs6,000 crore gold reserve which is lying ideal,” said Paranjape.
This comes after Sebi allowed hedge funds to participate in commodity markets in June this year.
The regulator is also mulling a regulatory framework to allow foreign portfolio investors (FPIs) in commodity markets through a consultative process.
At present, Sebi is considering foreign entities, which have a business interest in India, either by way of export or import, to take positions in the commodity derivatives market, said Mohanty.
Separately on Tuesday, the market regulator also clarified on foreign participation in commodities in international financial services centres (IFSCs).
“The participation would be limited to the derivatives contracts in non-agricultural commodities only,” said Sebi in the circular.
The commodity contracts would be cash settled on the prices determined by overseas exchanges and the contracts would need to be denominated in foreign currencies.