Fix in sight for commodity FPIs' tax jinx

A regulatory panel constituted by the Securities and Exchange Board of India (Sebi) is discussing a proposal to allow foreign portfolio investors (FPIs) to trade physically settled non-agricultural commodity derivatives by giving clearing members the authority to close positions before contracts enter the delivery period, according to three people aware of the development.

- Apoorva Ajith & Nayan Sahgal

The proposal, under discussion at the Commodity Derivatives Advisory Committee, seeks to address a long-standing tax hurdle that has kept FPIs out of bullion and base metal derivatives, where contracts are compulsorily deliverable on expiry.

“The CDAC has discussed a proposal to allow FPIs to hold their positions for up to two days before the tender period commences,” said one of the three people mentioned above, speaking on condition of anonymity. “If the FPI doesn’t close out or roll over two days before the tender period, the clearing member could be vested with the authority to close out the same in case the FPI fails to do so.”

In most commodity contracts, the tender period begins five days before the last trading day. An open buy or sell position not rolled over or squared off before the tender period begins results in compulsory delivery obligations.