SEBI Proposal May Allow FPIs to Trade in Gold, Silver and Base Metals

FPI Commodity Trading Latest News

• SEBI is reviewing a proposal to let foreign portfolio investors (FPIs) trade in non-cash settled, non-agricultural commodity derivatives. 
• If approved, FPIs could invest in gold, silver, zinc, and other base metals, expanding investor participation and deepening India’s commodity market.

Commodity Derivatives: An Overview

• Commodity derivatives are financial contracts linked to physical commodities like oil, gold, or wheat. 
• They help participants manage price risks or profit from market movements.

How They Work

• Underlying Asset: Value is derived from commodities such as farm produce, energy, or metals.
• Financial Contracts: Parties agree on future transactions at fixed prices and quantities.
• Price Fluctuation: Contract value changes with commodity price movements.

Purpose and Use

• Hedging: Producers and consumers secure prices to avoid losses from volatility.
• Speculation: Traders invest to profit from expected price changes.

Key Types of Contracts

• Futures: Binding contracts to buy/sell at a fixed price on a future date.
• Options: Provide the right, not obligation, to transact at a set price within a period.

Underlying Commodities

• Agricultural: Wheat, corn, cotton, coffee.
• Energy: Crude oil, natural gas.
• Metals: Gold, silver, copper, aluminum.

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SEBI’s Proposal: FPI Entry into Commodity Derivatives

• SEBI is reviewing a proposal to allow foreign portfolio investors (FPIs) to trade in non-cash settled, non-agricultural commodity derivatives, including metals. 
• While a committee is already working on strengthening the agricultural commodities segment, a separate group will be set up to develop the non-agricultural space. 
• The move follows SEBI’s recent approval of a single automatic window for foreign investors, even as FPIs have offloaded over ₹60,000 crore in equities since July 2025.

Current Commodity Trading Rules for Foreign Investors

• In India, commodities traded on exchanges are divided into hard commodities (metals and energy) and soft commodities (agricultural and processed products). 
• Presently, foreign investors are allowed to trade only in cash-settled non-agricultural contracts, such as natural gas, crude oil, and index-based futures and options. 
• However, they are barred from trading in ferrous metals, base metals, and precious metals under current regulations.

Expanded Trading Access for FPIs

• With the proposed regulatory changes, FPIs will be allowed to trade in physically settled non-agricultural commodities such as gold, silver, zinc, and lead. 
• This expansion, covering base and ferrous metals along with precious metals, will give FPIs access to markets where India is a significant global player. 
• Experts suggest this move will enhance capital efficiency and provide investors with broader opportunities, especially in commodities like gold and silver.

Why SEBI Wants FPIs in Non-Cash Commodities

• Allowing FPIs in non-cash, non-agricultural commodities aims to deepen India’s commodity markets and improve price discovery. 
• With their financial strength and research capabilities, FPIs can boost liquidity, especially in longer-duration contracts where trading is currently weak. 
• This would help industrial users hedge more effectively and reduce costs from monthly rollovers. 
• Greater participation could also encourage Indian corporates to hedge domestically instead of relying on international exchanges. 
• SEBI’s push reflects the need for stronger, more liquid markets amid global geopolitical uncertainties.

Source: IE | BS