SEBI Allows Foreign Portfolio Investors DMA to Exchange Traded Commodity Derivatives

The Securities and Exchange Board of India (SEBI), the capital markets regulator, has granted permission to stock exchanges to grant Direct Market Access (DMA) facility to Foreign Portfolio Investors (FPIs) to take part in Exchange Traded Commodity Derivatives (ETCDs).

According to a circular released by SEBI, the new provision will be effective immediately.

DMA is a service that allows a broker's clients to place orders directly on the exchange trading system without requiring manual intervention from the broker.

Additionally, DMA offers brokers benefits including direct control over orders, quicker order execution, fewer chance of human error during manual order entry, secrecy, lower impact costs for large orders, and easier implementation of hedging and arbitrage techniques.

"Based on representations received for enabling DMA facility to FPIs in ETCDs and deliberations by Commodity Derivatives Advisory Committee (CDAC) of Sebi, it has been decided to allow stock exchanges to extend DMA facility to FPIs for participation in ETCDs," the regulator said.

This authority is subject to a number of requirements, including risk management, operational standards, client authorization, broker-client agreements, and the DMA application process.

The Securities and Exchange Board of India (SEBI) authorized FPIs to participate in ETCDs in September 2022 with the aim of improving market depth and liquidity. Initially, SEBI granted permission to FPIs to participate in non-agricultural commodity derivative contracts settled in cash and indices consisting of such non-agricultural commodities, as per pti report.

The regulatory body had already permitted institutional investors to engage in the ETCD market, including Category III Alternative Investment Funds (AIFs), Portfolio Management Services, and Mutual Funds.

As per a recent Sebi circular, all debenture trustees registered in the FINNET 1.0 system of the Financial Intelligence Unit - India (FIU-India) are required to enroll in the FINNET 2.0 module.

The FINNET 2.0 module is designed to offer high-quality financial intelligence to protect the financial system against the ill-effects of money laundering, terrorism financing, and other economic offenses.