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MFs, portfolio managers can trade in commodity derivatives market

MFs, portfolio managers can trade in commodity derivatives market

New Delhi: To help broaden the commodity derivatives market, regulator Sebi's board on Friday approved allowing mutual funds and portfolio managers to trade in this segment.

Besides, certain alternative investment funds which are already permitted to participate in commodity derivatives will be permitted to deal with goods received in delivery against physical settlement of such contracts, if any, Sebi said in a post-board meeting statement.

The Securities and Exchange Board of India (Sebi) has constituted a Commodity Derivatives Advisory Committee (CDAC) to advise it in matters relating to regulations and development of this market segment. The committee had suggested that the commodity derivatives market should be opened up to domestic as well as foreign institutional participants in a phased manner.

In the first phase, it had suggested allowing certain alternative investment funds, portfolio managers and mutual funds, besides allowing direct participation of foreign participants having exposure to commodities.

The second phase entails allowing banks, insurance and reinsurance companies and foreign portfolio investors. Sebi has already permitted eligible foreign entities (having exposure to Indian commodity markets) and select alternative investment funds, suggested for the first phase. With approval for mutual funds and portfolio investors, the first phase would be complete. As per the proposal, mutual funds would be allowed to participate in exchange traded commodity derivatives, except in those of 'sensitive commodities' as identified by Sebi.

The mutual funds would need to appoint a dedicated fund manager with requisite skill and experience in the commodities market and also a custodian to have custody of underlying goods in case of physical settlement of such contracts. Similar rules would apply to portfolio managers.

In a slew of reform measures, securities market regulator Sebi's board on Friday approved changes in its norms for open offer exemptions for corporates facing debt restructuring as also for debt instrument valuation by mutual funds to make these processes fairer.

The Sebi board, at the same time, approved easing of norms for raising of funds through instruments like real estate and infrastructure investment trusts.

The regulator will amend its norms for valuation of money market and debt securities by mutual funds to make the process fairer and uniform across the industry to safeguard investors from default like scenarios as witnessed recently in the wake of IL&FS crisis and other defaults. The proposal seeks to make the valuation practices more reflective of the realizable value of money market and debt securities with residual maturity up to 60 days. Accordingly, the residual maturity limit for amortisation based valuation by mutual funds will be reduced from 60 days to 30 days.

The threshold maintained between reference price and valuation price would be plus or minus 0.025 per cent, while the reference price will be taken as security level price given by the valuation agencies.

The board also approved a proposal to bring uniformity and consistency across the mutual fund industry on valuation of money market and debt securities rated below investment grade, Sebi said.

The valuation agencies appointed by the Association of Mutual Funds in India (AMFI) will provide valuation of money market and debt securities rated below investment grade, the regulator added.

As the Asset Management Companies are responsible for fair valuation, they may deviate from the valuation provided by the valuation agencies subject to recording of detailed rationale for such deviations, appropriate reporting to the Board of AMC and Trustees and appropriate disclosures to investors, it noted.

The board noted that relevant exemptions, including open offer obligations, are available under the Sebi regulations for acquisition pursuant to a resolution plan approved under the Insolvency and Bankruptcy Code.

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