Sebi allows MFs, PMSes to invest in commodity derivatives

Mumbai: The Securities and Exchange Board of India (Sebi) on Friday allowed mutual funds and portfolio managers to invest in commodity derivatives, a move that would boost the commodities market.

“The Board deliberated and approved the proposal contained in the memorandum to enable participation by mutual funds and portfolio managers in exchange traded commodity derivatives in India subject to certain safeguards,” Sebi said in a release after its board meeting in New Delhi.

“Further, Category–III Alternative Investment Funds which are already permitted to participate in Commodity derivatives, have now been permitted to deal with goods received in delivery against physical settlement of such contracts, if any,” the regulator added.

On Thursday evening, S K Mohanty, whole-time member Sebi had said that participation of mutual funds in the commodity derivatives market would be a game changer.

Market participants welcomed Sebi’s move.

“Sebi board’s approval for enabling regulatory provisions leading to participation of mutual funds and portfolio management services (PMS) in the commodity derivatives market is a positive and a significant step from the regulator,” Mrugank Paranjape, MD & CEO, MCX said in an email.

“Institutional participation will play an important role in adding liquidity and depth to the commodity derivatives market, leading to enhanced efficiency in price discovery and risk management. Moreover, this will provide the Indian investors easy access to a new asset class and cater to their diversified investment and trading needs,” he added.

Prior to Friday’s announcement, mainly retail and wholesale commodity traders and a few corporate clients besides punters across asset classes comprised participants in the commodity derivatives market.

Sebi allowed category III alternative investment funds to trade too . Also foreign companies with exposure to Indian commodities not having presence in India have been allowed to trade recently.

Banks and FPIs are still not allowed though former can offer broking services to their clients to trade commodity derivatives.

“I think it’s a good opportunity,” said Prathit Bhobe, CEO and managing director at Tata Asset Management on Sebi allowing MFs and PMSes to invest in commodity derivatives.

“The market today anyway has participants, which are largely retail in nature. To that extent, with mutual funds being allowed to invest, means it is greater credibility, more liquidity, lesser volatility and better price discovery." he added.

When asked on issues such as likely regulation of warehouses, uniformity in quality, he said these were issues which need to be dealt with as mutual funds look to introduce these products.

"Some of these issues are known to us, and we need to figure out how are we going to tackle them if we are going to participate,” Bhobe added.

Further on Friday, Sebi also raised the leverage limit for InvITs from existing 49 per cent to 70 per cent of InvIT assets, subject to additional disclosures, and said a separate framework for privately placed unlisted InvITs, which provide sufficient flexibility to both issuers and investors shall be created.

Also, in the context of corporate debt restructuring, Sebi approved that exemptions from applicability of conditions for preferential issue provided in ICDR Regulations and from the obligation of making an open offer provided in Takeover Regulations will be restricted to all scheduled commercial banks and all Indian financial Institutions for acquisitions in their course of business.

Sebi also slashed fees payable by brokers by one-third, to Rs 10 per crore of transactions from Rs 15 earlier, and those by brokers for agri-commodities derivatives by 93.33 per cent to Re 1 per crore of transaction from Rs 15 earlier.

The regulator also approved the proposals to make the existing valuation practices more reflective of the realizable value of money market and debt securities with residual maturity upto 60 days.