Participation of Eligible Foreign Entities (EFEs) in the commodity derivatives market

SEBI/HO/CDMRD/DMP/CIR/P/2018/134 · 2018-10-09 · SEBI Division of Market Policy, Commodity Derivatives Market Regulation Department

Summary

This circular permits Eligible Foreign Entities (EFEs) with actual exposure to Indian commodity markets to participate in the commodity derivatives segment for hedging purposes. It establishes a regulatory framework defining EFE eligibility, jurisdictional requirements, and net-worth thresholds. The document outlines registration procedures through Authorized Stock Brokers and mandates strict KYC and compliance obligations. Section VI establishes position limits and documentation requirements for Foreign Exchange Entities (EFEs) to ensure hedging aligns with physical exposure. Section VII mandates risk management systems, including margin collection by Exchanges and Authorized Stock Brokers (ASBs). Sections VIII and IX outline monitoring mechanisms for limits and physical exposure, along with daily anonymous disclosure obligations for Exchanges.

Text

Currently, foreign entities are not permitted to directly participate in the Indian commodity derivatives market... Therefore these foreign entities should be enabled to hedge their price risk in the Indian commodity derivatives market.

it has been decided to permit foreign entities having actual exposure to Indian commodity markets, to participate in the commodity derivative segment of recognized stock exchanges for hedging their exposure. Such foreign entities shall be known as “Eligible Foreign Entities” (EFEs).

The provisions of this circular shall come into effect from the date of the circular.

This circular is issued in exercise of the powers conferred under Section 11(1) of the Securities and Exchange Board of India Act 1992 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

The Exchanges are advised to: i. To make necessary amendments to the relevant bye-laws, rules and regulations. ii. Bring the provisions of this circular to the notice of the stock brokers of the Exchange and also to disseminate the same on their website. iii. Communicate to SEBI, the status of the implementation of the provisions of this circular.

All commodity derivatives traded on Indian Exchanges except for those contracts having underlying commodity defined as ‘Sensitive Commodity’ in terms of SEBI circular SEBI/HO/CDMRD/DMP/CIR/P/2017/84 dated July 25, 2017 or by any other stipulation by SEBI which are disclosed on Exchange websites.

“Eligible Foreign Entities” (EFEs) are the ‘Person resident outside India’ as defined in Foreign Exchange Management Act, 1999, and are having actual exposure to Indian physical commodity markets.

Such EFEs shall have actual exposure to Indian physical commodity markets.

Such EFE is resident in a country/jurisdiction whose securities market regulator and/or commodity derivatives market regulator is a signatory to IOSCO’s MMoU (Appendix A Signatories) or a signatory of a bilateral MoU with SEBI.

Provided that such EFE is not resident in a country identified in the public statement of Financial Action Task Force as: i. a jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which counter measures apply; or ii. a jurisdiction that has not made sufficient progress...

If such EFEs are also registered with SEBI as Foreign Portfolio Investors (FPIs) or Foreign Venture Capital Investors (FVCIs) 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 / securities / commodities under the respective registrations.

The minimum net-worth requirement for such EFE shall be US$ 500,000.

Source: SecMarx — Participation of Eligible Foreign Entities (EFEs) in the commodity derivatives market. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.