MUMBAI: The board of market regulator Sebi on Thursday decided to allow foreign funds in the non-agri commodity derivatives segment provided all contracts that are not based on indices are cash settled. For index-based derivatives, there are no such barriers. Allowing foreign portfolio investors (FPIs) in this segment was one of the main demands of the commodity market players as well as foreign fund managers.Sebi’s board also said it would allow celebrity endorsements of Sebi-regulated products but with adequate safeguards.In its board meeting, Sebi also said that very soon portfolio managers will be allowed to invest in foreign equities, including equities, debt, ETFs, REITs and mutual funds. Portfolio managers will be allowed to invest in unlisted debt securities and up to 1.25 times their clients’ assets in exchange-traded derivatives. The regulator also said it will overhaul the settlement mechanism for violations of Sebi rules and introduce a new formula for calculating settlement amounts. It will fast-track the settlement mechanism for cases involving amounts of up to Rs 10 lakh.Going ahead, there will be a single advertising code for stock brokers, mutual funds, investment advisers, portfolio managers and other Sebi-regulated entities.Sebi’s move to also allow foreign funds in the non-agri commodity derivatives space is aimed at increasing liquidity in the segment as the decision could bring in more institutional players. This could also improve the price discovery process in the space that in turn helps convergence between prices in the physical space and the derivatives segment. “With the objective of deepening liquidity in the commodity derivatives market, it’s been decided...to permit participation of FPIs in the following contracts — non-agricultural index derivatives contracts, irrespective of the underlying being cash-settled or not and non-cash-settled non-agricultural commodity derivatives contracts,” a Sebi release said.Sebi said that the new formula for calculating the settlement amount will be based on a base amount linked to the minimum penalty prescribed for the violation under securities laws. Under the new settlement mechanism, the terms for settlement will comprise the settlement amount, disgorgement of wrongful gains, and remedial and regulatory terms.
