SEBI Proposes Wider FPI Access to Commodity Derivatives: Two Major ETCD Changes Open for Comments

SEBI has proposed widening Foreign Portfolio Investor (FPI) participation in India's exchange-traded commodity derivatives (ETCD) market. Its Consultation Paper on FPI Participation in Exchange Traded Commodity Derivatives, issued on 11 August 2026, seeks public views on two changes: letting FPIs trade non-agricultural index derivatives irrespective of how the underlying contracts settle, and letting them trade non-cash settled (physically settled) non-agricultural commodity derivatives, subject to safeguards that keep FPIs out of physical delivery. Comments were invited until 1 September 2026.

Where the framework stands today

The SEBI Board decided on 29 June 2022 to allow FPIs into Indian ETCDs. The operating rules came through a circular of 29 September 2022, now part of the Master Circular for the commodity derivatives segment dated 4 August 2023. Para 4.2.2(i) of that Master Circular allows FPIs to participate only in cash settled non-agricultural commodity derivative contracts and in indices comprising such non-agricultural commodities. Most liquid non-agricultural contracts on Indian exchanges are physically settled, so this condition has kept FPI access narrow.

Proposal 1: non-agricultural index derivatives

SEBI points out that an index derivative is cash settled by nature, even when some of the contracts in the index settle by delivery. There is therefore no delivery risk for an FPI trading the index itself. The paper (para 3.4) asks whether FPIs should be allowed to participate in non-agricultural index derivative contracts irrespective of whether the underlying is cash settled. SEBI's Commodity Derivatives Advisory Committee (CDAC) agreed and recommended the change.

Proposal 2: physically settled non-agricultural contracts

The second proposal is the more sensitive one, because a physically settled contract can end in a delivery obligation. The CDAC recommended allowing FPIs into non-cash settled non-agricultural contracts subject to safeguards that prevent any delivery obligation falling on FPIs. SEBI asks two questions: whether FPIs should be allowed in such contracts (para 4.18), and whether stakeholders agree with the proposed framework (para 4.19).

Proposed safeguards

• Voluntary exit: FPIs must square off or roll over positions before the tender period starts, that is, three days before contract expiry (T-3, where T is the start of the tender or staggered delivery period).
• Prior arrangement: before trading, the FPI must sign a tripartite agreement with a Professional Clearing Member and a Trading Member, or a bipartite agreement with a Trading-cum-Clearing Member (TM/TCM). The FPI may designate one TM/TCM across all exchanges and commodities, one per exchange, or one per commodity or commodity group within an exchange.
• Confirmation to the exchange: the TM/TCM must inform the exchange or clearing corporation of the arrangement, and trading for the FPI is enabled only after that confirmation.
• Compulsory transfer: any open FPI position left before the tender period is transferred to the designated TM/TCM automatically, after market hours, at the closing price or daily settlement price declared by the exchange for that day.
• Levies: transfer trades attract exchange transaction charges, SEBI turnover fees, Commodity Transaction Tax, stamp duty and GST on turnover charges.
• Position limits: a TM whose limits are breached by transferred positions gets up to two trading days from the start of the tender period to bring them within limits, on lines similar to devolved option positions.
• Risk absorption charge: the agreements may carry a pre-agreed charge payable when positions are transferred involuntarily, to discourage FPIs from relying on the transfer mechanism instead of exiting on their own.

Who needs to act

If the proposals are adopted, the work falls mainly on intermediaries. Brokers and clearing members acting as designated TM/TCMs would need new client agreements, T-3 monitoring, systems for post-close transfers, capacity to take delivery-bound positions and limit management for the two-day window. Custodians and compliance teams of FPIs would need to map eligible contracts and exit procedures. Exchanges and clearing corporations would need to build the confirmation and transfer process.

The paper is a consultation, not a final rule. The existing Master Circular framework continues until SEBI issues a circular on the proposals. Comments could be filed through SEBI's online public comments form or by email to mrd_consultation@sebi.gov.in; the full proposal text is in the SEBI consultation paper PDF.

Updated on 28 September 2026: added the official SEBI consultation paper, the 1 September 2026 comment deadline, the T-3 exit rule, TM/TCM agreement and transfer details, levies, position-limit relief and the current Master Circular position.