SEBI Expands Commodity Derivatives Market for FPIs to Include Physically Settled Non-Agri Contracts — September 24, 2026

In a decisive regulatory reform aimed at deepening market liquidity and bringing Indian markets in line with global standards, the Securities and Exchange Board of India (SEBI) has permitted registered Foreign Portfolio Investors (FPIs) to participate in a broader array of exchange-traded commodity derivatives (ETCDs).

The new framework expands access beyond the previously allowed cash-settled contracts, opening up physically deliverable non-agricultural commodities such as bullion (gold and silver) and base metals, as well as commodity index derivatives.

Moving Beyond Cash-Settled Contracts

Since SEBI first allowed foreign institutional participants into domestic exchange-traded commodity derivatives in 2022, FPI participation had been strictly restricted to cash-settled non-agricultural contracts, notably crude oil and natural gas.

Because Indian derivative contracts for bullion and base metals are compulsorily deliverable upon expiry, foreign funds had been locked out of the largest and most active segments of the domestic commodity market due to operational and regulatory constraints surrounding physical commodity ownership and delivery.

Under the revised framework, FPIs can now take positions in these deliverable contracts, backed by safeguards that ensure they do not take or make actual physical delivery of the underlying commodities.

Mechanism for Safe Exit Before Delivery

To address the regulatory barrier regarding physical commodity storage, logistics, and delivery, SEBI's framework establishes a clear pre-expiry exit process:

• Pre-Tender Liquidation: Foreign investors will roll over or square off their open positions in deliverable contracts before the compulsory delivery or tender period begins.
• Clearing Member Intervention: If an FPI leaves a position open heading into the delivery window, clearing members and exchanges are empowered to transfer or close out the open positions after market hours at exchange-determined settlement prices.
• Delivery Exemption: Once closed or transferred, the FPI holds no delivery rights, obligations, or physical liability toward the underlying goods.

Non-Agricultural Index Derivatives Opened

SEBI has also clarified that FPIs can actively trade non-agricultural commodity index derivatives. Because index derivatives are cash-settled by nature—irrespective of whether the individual components in the basket are physically deliverable—they provide foreign investors with a seamless hedging tool that carries zero delivery friction.

Impact on Domestic Exchanges and Market Depth

The regulatory opening is expected to provide a substantial structural tailwind for Indian bourses, particularly the Multi Commodity Exchange of India (MCX). Previously, global institutional trading houses and funds were forced to route trades through overseas exchanges or offshore derivative instruments.

Key Market Implications:

• Increased Market Depth: Allowing institutional foreign funds into gold, silver, copper, and zinc is projected to narrow bid-ask spreads, improve price discovery, and expand daily turnover.
• Hedging for Global Portfolios: Multinational corporations and foreign entities with exposure to Indian manufacturing and supply chains can now hedge raw material price risks directly on domestic exchanges.
• Liquidity Inflow for MCX: Market participants estimate that foreign institutional presence in non-energy commodity derivatives could steadily capture between 4% and 5% of total trading volume over the medium term, boosting exchange earnings.

With risk mitigation rules firmly in place, this reform marks a key milestone in integrating India’s commodity derivatives infrastructure with international financial markets.

Tags: SEBI MCX Foreign Portfolio Investors Commodity Derivatives Bullion Base Metals