INSUBCONTINENT EXCLUSIVE:
are not permitted to directly participate in the commodity derivatives market, even if they import/export various commodities from/to the
country.As per the regulator, such entities by virtue of their actual exposure to the various commodities in the domestic market are
valuable stakeholders in the value chain of such commodities, and are also exposed to price uncertainty of the commodity markets
Therefore, these entities should be enabled to hedge their price risk in the country's commodity derivatives market.Accordingly, in a
circular, Sebi said it has "decided to permit foreign entities having actual exposure to the country's commodity markets to participate in
the commodity derivative segment of recognised stock exchanges for hedging their exposure".Such foreign entities will be known as Eligible
Foreign Entities (EFEs).The move comes after Sebi in its board meeting last month approved the proposal in this regard.Under the norms, such
EFEs will have actual exposure to Indian physical commodity markets
The EFE is resident in a country, whose securities or commodity derivatives market regulator is a of a bilateral pact with Sebi
The minimum net-worth requirement for such EFE will be $500,000."If such EFEs are also registered with Sebi as Foreign Portfolio Investors
or Foreign Venture Capital Investors then they are permitted to participate in commodity derivatives markets as EFE provided that they have
actual exposure to Indian physical commodity markets and subject to conditions that there is clear segregation of funds or securities or
commodities under the respective registrations," it said.With regard to registration, as per the proposal, EFEs desirous of taking hedge
positions in the country's commodity derivatives market need to approach Authorised Stock Brokers (ASBs), from amongst the brokers which
are registered under Sebi, having minimum net-worth of Rs 25 crore.The EFEs need to meet KYC (know your customer) requirements, Sebi
noted.The commodity derivatives exchanges will put in place appropriate risk management systems in place for allowing EFE to take positions
in eligible commodities as well as a mechanism to monitor the limits as well as physical exposure of an EFE, which may include seeking
periodical reports.The position limits should be governed by the hedge policy of the commodity derivatives exchanges and no separate client
trading limits should be allowed for EFEs
Such exchanges need to issue a separate hedge code for easy identification of EFEs.However, Sebi can place restrictions based on the need to
maintain market integrity.Hedge limits for a commodity will be determined on a case to case basis, depending on the applicant's hedging
requirement and other factors, which the commodity derivatives exchange deems appropriate in the interest of the market.Regarding
disclosure, Sebi said that commodity derivatives exchanges on daily basis need to disclose on their websites the positions as well as hedge
limit allocated to EFEs, indicating the period for which approval is valid, in an anonymous manner.The regulator, in May, came out out with
consultation paper for allowing trading in the commodity derivatives market by EFEs and had sought comments from all the stakeholders in
this regard.The proposal followed recommendation from the regulator's Commodity Derivatives Advisory Committee (CDAC) for allowing in this
market the hedge funds (category III alternative investment funds), portfolio management service (PMS) firms, mutual funds and direct
participation of foreign participants having exposure to commodities in the first phase.In the second phase, CDAC proposed to allow banks,
insurers, foreign portfolio investors and pension funds in the commodity derivatives market.Last year, Sebi had issued consultation papers
for allowing mutual funds, portfolio managers and hedge funds, among others.
