SEBI is considering allowing Foreign Portfolio Investors (FPIs) to trade in non-agricultural commodity derivatives to boost market liquidity. While the industry supports wider participation, brokers have raised concerns about the risks of automatically absorbing unexited positions. Investors in exchange and broking stocks are monitoring how the final rules address these operational hurdles.
The Securities and Exchange Board of India (SEBI) is finalizing a proposal to allow Foreign Portfolio Investors (FPIs) to trade in physically settled non-agricultural commodity derivatives, such as gold, silver, and base metals. Following a public consultation process that closed on September 1, 2026, the market regulator is expected to decide on the final framework soon. The primary goal of this initiative is to improve liquidity and ensure better price discovery in India's commodity markets by bringing in global institutional participants.
While the industry has largely welcomed the plan, the current debate centers on the rules for exiting positions. The proposed framework requires FPIs to either square off their trades or roll them over to the next month at least three days before the tender or delivery period begins. This rule aims to prevent the complication of foreign investors receiving physical delivery of goods.
The point of contention for market participants, particularly brokers and clearing members, is the fallback mechanism. Under the proposal, if an FPI fails to exit a position, the contract would be automatically transferred to a designated trading member or clearing member at the exchange’s settlement price. Industry groups have warned that this could force brokers to hold unwanted, residual positions on their own proprietary books. This creates potential financial and operational risks, as brokers may face difficulty staying within regulatory position limits when forced to absorb large, unexpected volumes from FPI clients.
Market participants have requested that such transfers be treated as an emergency backstop rather than a standard settlement procedure. They are also seeking clearer guidelines on margin requirements and who bears the profit or loss during the transfer process to avoid putting smaller, non-bank intermediaries at risk. There is precedent for caution in this sector; a previous framework attempted between 2018 and 2022 allowed foreign investors to trade, but it ultimately saw low participation and was withdrawn.
For investors monitoring exchange and broking firms, such as the Multi Commodity Exchange (MCX), the final design of these rules is critical. Greater FPI participation is generally expected to support trading volumes and liquidity, which benefits exchange operators. However, if the settlement mechanism is perceived as too risky, it could limit broker participation or require firms to set aside more capital to manage the potential liability of forced position transfers. The next key update will be the release of the final circular from SEBI, which will define the specific limits and responsibilities for brokers in the event of an unexited position.