Participation of Institutional Investors in the Commodity Derivatives Market

In order to enhance liquidity, depth for efficient price discovery and price risk management in the commodity derivatives segment, various committees, including those constituted by the Government of India, have recommended participation of institutional investors in the commodity derivatives markets. Taking cognizance of the fact that participation by institutional investors and based on the recommendation of the Commodity Derivatives Advisory Committee (CDAC), SEBI allowed Category III Alternative Investment Funds, Mutual Funds and Portfolio Management Services to participate in ETCDs with certain conditions prescribed vide Circular dated June 21, 2017. The sub-group of CDAC recommended the opening of ETCDs to other institutional investors in a phased manner. In phase I, Category III Alternative Investment Funds (AIFs), Portfolio Management Services (PMS), Mutual Funds and direct participation of foreign participants having exposure to commodities were allowed and in phase II, banks, insurance/reinsurance companies, foreign portfolio investors (FPIs), pension funds were permitted. While Category III AIFs were already permitted, the participation by mutual funds and FPIs were permitted subsequently vide circular dated April 26, 2019 and September 29, 2022, respectively.