SEBI has released a consultation paper to expand foreign portfolio investor (FPI) access to physically settled non-agricultural commodity derivatives. The move aims to improve market liquidity and help India influence global pricing. This remains a proposal, with public comments open until September 1, 2026.
The Securities and Exchange Board of India (SEBI) has initiated a move to open the country’s physically settled non-agricultural commodity derivatives market to foreign portfolio investors (FPIs). According to a consultation paper released on August 11, 2026, the regulator is looking to remove existing restrictions that currently limit FPIs to trading only cash-settled derivatives in these categories.
This proposal is part of a broader effort to integrate Indian commodity markets more deeply with global participants. By allowing FPIs to participate, the regulator aims to boost liquidity, improve price discovery, and enhance hedging options for market participants. The long-term objective, as emphasized by regulators, is to help India transition from a country that follows global price trends to one that actively influences them in commodities where it has significant production or consumption.
Safeguards and Trading Rules
Because FPIs are typically financial investors and are not equipped to handle the logistical complexities of physical commodity delivery—such as storing gold, silver, or base metals in registered warehouses—the proposal includes specific safeguards. The draft rules mandate that FPIs must square off or roll over their open positions before the start of the tender or delivery period. This ensures that foreign investors can participate in price movements without becoming involved in the physical settlement process, which requires GST registration and specialized warehousing infrastructure.
In addition to the FPI expansion, SEBI Chairman Tuhin Kanta Pandey confirmed that the regulator is reviewing margin requirements and position limits. The goal is to reduce unnecessary friction and lower costs for traders while maintaining strict risk management. The regulator has already concluded its review of position limits for agricultural commodities, with new guidelines expected to be issued shortly.
What Investors Should Monitor
While these proposals are aimed at making markets more efficient, they are currently in the consultation phase. The final rules will be shaped by the feedback provided by stakeholders, which is being accepted until September 1, 2026. For investors and market participants, the key monitorable will be the final notification of these rules.
There are inherent risks in changing market structures. If the systems for squaring off or rolling over positions are not robust, it could lead to market instability during contract expiry periods. Furthermore, until the final guidelines are notified, there remains a level of regulatory uncertainty regarding the exact terms of participation and the compliance requirements for foreign entities.