This is with reference to the SEBI circular no. SEBI/HO/IMD/DF2/CIR/P/2019/65
dated May 21, 2019 on the captioned subject, wherein, SEBI has permitted Mutual Funds to take participate in Exchange Traded Commodity Derivative Market.
Brief of the SEBI circular is given as below
1.In order to promote institutional participation in Exchange Traded Commodity Derivatives (ETCDs), SEBI has permitted Category III Alternative Investment Funds to participate in exchange traded commodity derivatives vide circular no. SEBI/HO/CDMRD/DMP/CIR/P/2017/61 dated June 21, 2017 and also vide circular no. SEBI/HO/CDMRD/DMP/CIR/P/2018/134 dated October 09, 2018 permitted Eligible Foreign Entities (EFE) having actual exposure to Indian commodity markets, to participate in the commodity derivative segment of recognized stock exchanges for hedging their exposure. In furtherance to this objective, it has been decided to permit mutual funds to participate in ETCDs.
2.The participation of mutual funds in ETCDs would be subject to the following:
i.Mutual funds are permitted to participate in ETCDs in India, except in commodity derivatives on ‘Sensitive Commodities’ as defined vide SEBI circular no. SEBI/HO/CDMRD/DMP/CIR/P/2017/84 dated July 25, 2017.
ii.In partial modification to paragraph 3 of SEBI Circular No. CIR/IMD/DF/11/2015 dated December 31, 2015, it has been decided that ETCDs having gold as the underlying, shall also be considered as ‘gold related instrument’ for Gold Exchange Traded Funds (Gold ETFs).
iii.No Mutual fund schemes shall invest in physical goods except in ‘gold’ through Gold ETFs. Further, as mutual fund schemes participating in ETCDs may hold the underlying goods in case of physical settlement of contracts, in that case mutual funds shall dispose of such goods from the books of the scheme, at the earliest, not exceeding 30 days from the date of holding of the physical goods.
iv.No mutual fund scheme shall have net short positions in ETCDs on any particular good, considering its positions in physical goods as well as ETCDs, at any point of time.
v.Mutual funds are permitted to participate in ETCDs through the following schemes:
a)Hybrid schemes in terms of paragraph C of the Annexure to SEBI Circular No. SEBI/HO/IMD/DF3/CIR/P/2017/114 dated October 06, 2017, which includes multi asset scheme and
b)Gold ETFs.
vi.In case of existing schemes, as mentioned in paragraph 3(v) above, prior to commencement of participation in ETCDs, the scheme shall comply with the provisions of Regulation 18(15A) of SEBI (Mutual Funds) Regulations, 1996, as this will lead to change in fundamental attributes of the scheme and all unitholders shall be given a time-period of at least 30 days to exercise the option to exit at prevailing NAV without charging of exit load, if any.
vii.Prior to participation in ETCDs, the AMCs shall adhere to the following:
a)Appoint a dedicated fund manager with requisite skill and experience in commodities market (including commodity derivatives market).
b)Appoint a custodian registered with the Board for custody of the underlying goods, arising due to physical settlement of contracts.
c)Have written down investment policy for participation in ETCDs approved by the Board of the Asset Management Company and the Board of Trustees.
d)Have written down valuation policies approved by the Board of the AMC and the Board of Trustees for valuation of commodity derivatives and the underlying goods, arising due to physical settlement of contracts. The approved valuation policies should be subject to the principles of fair valuation of the assets of mutual funds schemes.
viii.In partial modification to paragraph 2(b) of SEBI Circular No.CIR/IMD/DF/04/2013 dated February 15, 2013 read with paragraph 3(b) of SEBI Circular No. CIR/IMD/DF/11/2015 dated December 31, 2015, it has been decided that before investing in GDS of Banks, GMS and ETCDs having gold as the underlying, mutual funds shall put in place written policy with regard to such investments with due approval from the Board of the Asset Management Company and Board of Trustees. The policy should have provisions to make it necessary for the mutual fund to obtain approval of trustees for investment proposal in GDS of any Bank and GMS. The policy shall be reviewed by mutual funds, at least once in a year.
ix.Mutual fund schemes may participate in the ETCDs as ‘clients’ and shall be subject to all the rules, regulations and instructions, position limit norms, etc. as may be applicable to clients, issued by SEBI and Exchanges from time to time. The position limits at mutual fund level be as applicable to ‘Trading Members’.
x.Schemes investing in ETCDs shall be benchmarked against an appropriate
benchmark.
xi.AMCs shall not onboard Foreign Portfolio Investors (FPIs) in schemes investing in ETCDs until FPIs are permitted to participate in ETCDs.
Copy of the aforesaid SEBI circular is attached herewith as Annexure.
The Stock brokers are advised to take note of the same.
For and on behalf of BSE Ltd.
Gopalkrishnan Iyer
Chief General Manager
(Brokers’ Supervision)