New Delhi: Market regulator Sebi is likely to approve a proposal to allow trading in the commodity derivatives segment by foreign entities at its board meeting next week.

Besides, the regulator may deliberate on the issue of introducing a common application form for foreign portfolio investors (FPIs) to enter into the domestic capital market as part of the exercise to improve ease of doing business.

Further, it is likely to discuss the procedure of transmission of securities in physical mode, officials said.

Tweak for foreigners

Foreign entities may be allowed to hedge their exposures with derivatives trading in all commodities traded on Indian exchanges, barring sensitive commodities.

Under the proposal, the foreign entities, having actual exposure to Indian physical commodity markets, may be termed eligible foreign entities (EFEs).

A detailed set of norms for eligibility criteria, disclosure and KYC requirements, code of conduct and safeguards against any unwanted price fluctuations has also been proposed.

The direct participation of foreign entities having actual exposure to commodities is expected to make Indian commodity derivatives market more broad-based, vibrant, deep and efficient.

The regulator, in May, came out out with a consultation paper to allow trading in the commodity derivatives market by EFEs and had sought comments from all the stakeholders in this regard.

The proposal followed recommendations from the regulator's Commodity Derivatives Advisory Committee (CDAC) to allow in this market the hedge funds (category III alternative investment funds), portfolio management service (PMS) firms, mutual funds and direct participation of foreign participants having exposure to commodities in the first phase. In the second phase, the CDAC proposed to allow banks, insurers, foreign portfolio investors and pension funds in the commodity derivatives market.

Last year, Sebi had issued consultation papers for allowing mutual funds, portfolio managers and hedge funds, among others. According to the proposal, such EFE should not be an Indian resident but may be a non-resident Indian (NRI), provided that such an NRI is engaged in physical commodity trading businesses with India.