SEBI eyes FPIs, mutual funds to deepen commodity derivatives market

SEBI is taking steps to boost the commodity derivative market by inviting FPIs and mutual funds, said Chairman Tuhin Kanta Pandey. The regulator is also addressing pricing manipulation risks and retail trader losses in options trading.

The Securities and Exchange Board of India (SEBI) is actively assessing policy measures to enhance participation, liquidity, and volume in the commodity derivative segment, market regulator Chairman Tuhin Kanta Pandey stated on Wednesday.

Inviting FPIs and Mutual Funds

Speaking to the media on the sidelines of the Global Commodity Conclave 2026 in Mumbai, Pandey highlighted that inviting Foreign Portfolio Investors (FPIs) and mutual funds into commodity derivatives aims to build market depth and attract hedgers into the ecosystem. The market regulator has brought in a Consultation Paper on FPI Participation in Exchange Traded Commodity Derivatives (ETCDs) on Tuesday.

New Pricing Mechanisms and VWAP Benchmarks

Addressing the transition toward new pricing mechanisms and Volume-Weighted Average Price (VWAP) benchmarks, Pandey noted that structural improvements were necessary to eliminate price manipulation risks and limit tracking errors for passive vehicles.

"Mutual funds--there is a need for a reliable benchmark price for them now," Pandey said, explaining the rationale behind the shift. "Before this, whatever system was in place had an issue where trades coming in towards the close carried a high probability of manipulation."

He emphasized that major brokerages are actively displaying indicative settlement prices to enhance transparency across web and mobile platforms. "If you look at the consultation papers, you will know what the objectives are of this particular measure which we are trying to bring," Pandey stated. "If you look at the price differences since August 3, they have reduced significantly in both the Sensex and NSE... We believe the participation and the effectiveness of showing indicative prices will settle."

Streamlining Foreign Inflows

Expanding on foreign inflows across capital markets, Pandey reiterated SEBI's continuous drive to streamline registration processes and eliminate procedural hurdles for institutional players. "From SEBI's point of view, wherever there is friction--whether in registration, the block deal framework, or netting--we are trying to minimize it wherever possible to improve the ease of doing business," he explained. He clarified that taxation matters raised by institutional investors remain strictly under the central government's purview.

Addressing Retail Safety in Derivative Trading

Turning to retail safety in high-risk derivative trading, Pandey expressed concern over ongoing losses among options traders, particularly on contract expiry days. Reaffirming SEBI's intention to release a comprehensive analytical report on trader demographics and outcomes, he remarked, "We had mentioned earlier that we would bring out another detailed paper. We will publish that paper shortly, and you will get a chance to analyze it. It will give you a much more granular idea of who is incurring losses. It is not just retail; even well-capitalized traders are losing money."

He cautioned that while market risks are inherent, expiry day options trading carries severe operational complexity. "Loss and profit are part of market risks that people have to take," he noted. "What we are trying to emphasize is that in many situations, this kind of trading--particularly option trading on expiry days--is not as simple as people assume, and heavy losses are continuing."

GST Proposals for Commodity Deliveries

On regulatory alignment with fiscal authorities, Pandey disclosed that SEBI has submitted formal proposals to the GST Council Secretariat regarding commodity deliveries. To resolve logistical friction caused by requiring separate state-level SGST registrations across multiple physical warehouses, SEBI is pushing for a unified IGST model.

"What we are saying is that we have sent proposals to the GST Council Secretariat because when delivery happens in the commodity market, warehousing can be anywhere," Pandey explained. "So instead of requiring separate registrations across all states, it can be brought under an IGST model rather than SGST."

"We will need to engage further with the GST Council, as both the States and the Centre are involved," he added regarding the timeline. "If a practical solution emerges--keeping the revenue identical--it will help everyone significantly, and delivery-based contracts will become much more easily executable."

(ANI)

(Except for the headline, this story has not been edited by Asianet Newsable English staff and is published from a syndicated feed.)