A New Era for Institutional Investors

Mumbai, India – October 16, 2025 – The Securities and Exchange Board of India (SEBI) is spearheading a transformative initiative aimed at significantly boosting institutional participation in India’s agricultural and non-agricultural commodity markets. These concerted efforts, unfolding as of late 2025, are designed to inject vital liquidity, deepen hedging capabilities, and ultimately position India as a formidable force in the global commodity landscape, moving from a “price-taker” to a “price-setter.” The reforms signal a strategic evolution for a market historically dominated by retail and smaller players, promising enhanced efficiency and broader investor engagement.

The immediate implications are profound: a surge in market depth and liquidity is anticipated as major financial institutions prepare to enter or expand their footprint. This regulatory pivot is expected to refine price discovery, offering more accurate signals for producers, consumers, and traders. Furthermore, the increased sophistication brought by institutional capital is set to bolster India’s appeal to foreign investors, fostering global integration and potentially leading to the development of innovative financial products within the commodity derivatives space.

A Deep Dive into SEBI’s Strategic Reforms

SEBI’s multi-pronged strategy involves a series of meticulously planned regulatory adjustments and engagements with key stakeholders. For non-agricultural commodity markets, a pivotal proposal currently under active consideration is to permit Foreign Portfolio Investors (FPIs) to trade in non-cash-settled derivative contracts, expanding beyond their current restriction to cash-settled instruments. This move would unlock significant foreign capital in precious, industrial, and base metals. Simultaneously, SEBI Chairman Tuhin Kanta Pandey has confirmed ongoing engagement with the government to allow banks, insurance companies, and pension funds to participate in these derivatives, a step deemed critical for market depth. A dedicated working group is also planned for the non-agricultural sector, focusing on real-time margin collection, new product promotion, logistics, and SME participation. FPIs have already been granted direct market access (DMA) in Exchange Traded Commodity Derivatives (ETCDs), streamlining their operations.

In the agricultural segment, a specific committee has been constituted to recommend measures for deepening participation and hedging opportunities, acknowledging the sector’s unique sensitivities. Across both segments, SEBI is addressing Goods and Services Tax (GST) related hurdles that impede physical delivery on exchange platforms. By December 2025, a unified reporting system, “Samuhik Prativedan Manch,” will integrate commodity-specific brokers, enhancing transparency and compliance. These initiatives build upon earlier measures that permitted Category III Alternative Investment Funds (AIFs) and later mutual funds and portfolio…