TMI BlogParticipation of Eligible Foreign Entities (EFEs) in the commodity derivatives marketX X X X Extracts X X X X X X X X Extracts X X X X ..... onducive for the overall development of the commodity derivatives market in India, SEBI issued consultation paper on May 18, 2018 to discuss the suitable framework for allowing foreign participants to hedge their commodity exposure. Pursuant to feedback received from the market participants during the consultative process, it has been decided to permit foreign entities having actual exposure to Indian commodity markets, to participate in the commodity derivative segment of recognized stock exchanges for hedging their exposure. Such foreign entities shall be known as Eligible Foreign Entities (EFEs). The detailed regulatory framework for participation by the EFEs have been outlined at Annexure to the circular. 3. The provisions of this circular shall come into effect from the date of the circular. 4. This circular is issued in exercise of the powers conferred under Section 11(1) of the Securities and Exchange Board of India Act 1992 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market. 5. The Exchanges are advised to: i. To make necessary amendments to the relevant bye-laws, rules and regulations. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r ii. a jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the Financial Action Task Force to address the deficiencies. 3. If such EFEs are also registered with SEBI as Foreign Portfolio Investors (FPIs) or Foreign Venture Capital Investors (FVCIs) then they are permitted to participate in commodity derivatives markets as EFE provided that they have actual exposure to Indian physical commodity markets and subject to conditions that there is clear segregation of funds / securities / commodities under the respective registrations. 4. The minimum net-worth requirement for such EFE shall be US$ 500,000. IV. Registration of EFEs 1. The EFEs desirous of taking hedge positions in Indian commodity derivatives market shall approach Authorized Stock Brokers (ASBs), from amongst the Brokers which are registered under SEBI(Stock brokers and sub-brokers) Regulations, 1992 having minimum net-worth of INR 25 Crores and are authorized by the Exchanges for opening of such accounts. 2. For ASBs, in addition to the minimum Net-worth criteria prescribed above the Exchanges shall frame further guide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roach adopted for the equivalent category of Foreign Portfolio Investors (FPIs). 2. Such EFE shall also provide its valid Legal Entity Identifier (LEI) issued by organizations accredited by the Global Legal Entity Identifier Foundation (GLEIF), wherever available. VI. Position Limit, documentation and other conditions 1. The position limits shall be governed by the hedge policy of the Exchanges and no separate client trading limits shall be allowed for EFEs. Exchanges shall issue a separate hedge code for easy identification of EFEs. 2. Appropriate restrictions shall be placed by Exchanges to maintain market integrity. 3. The tenor of the hedge shall not be greater than the tenor of underlying exposure. At any point of time during the hedge period, hedging positions taken in derivatives contracts by EFE, across multiple Exchanges/Contracts, shall not exceed his/its actual exposure in the physical market. 4. Hedge limits for an EFE will be determined on a case to case basis, depending on applicant s actual exposure to the commodity, hedging requirement and other factors which the Exchanges deems appropriate in the interest of market. The EFE shall approach the AS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. The approved hedge limit is valid from the date of sanction for a period specified in the sanction letter. Unless renewed, the hedge limit shall stand terminated automatically upon expiry of such period without any notice. The EFE shall apply for any renewal of limits in advance and before the expiry of earlier approval, along with relevant documents as prescribed by the Exchanges from time to time. 9. The hedge limit shall not be available for the near month contracts of the said underlying commodity from the date of applicability of near month or spot month, however once the near month starts the limit shall be equivalent to the limit available to regular clients or the hedge limit allocated, whichever is lower. 10. For the ease of business, the Exchanges shall develop an online system to deal with the EFEs through ASBs in this regard. VII. Risk Management 1. Exchanges/CC shall put in place appropriate risk management systems for allowing EFE to take positions in eligible commodities. 2. The margins for any commodity prescribed by the Exchanges/CC for the other market participants shall also be applicable to EFE. As the hedge positions are expected to be l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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