After mutual funds, Sebi allows portfolio managers to invest in commodity derivatives segment

Markets regulator Sebi Wednesday allowed portfolio managers to invest in exchange traded commodity derivatives (ETCDs) on behalf of their clients with an aim to deepen the participation in the segment. The move comes after the regulator Tuesday permitted mutual funds to participate in the same segment. The participation of portfolio managers however is subject to certain conditions, Sebi said.

"Portfolio managers may participate in ETCDs on behalf of their clients and such participation shall be in compliance with all rules, regulations including Sebi (Portfolio Managers) regulations, 1993 and circulars/guidelines and position limit norms as may be applicable to clients, issued by Sebi and exchanges from time to time," the regulator said in a circular.

It would be mandatory for portfolio managers to appoint Sebi-registered custodian before dealing in ETCDs, it added.

Further, portfolio managers may participate in ETCDs after entering into an agreement with the client. For existing clients, portfolio managers may execute addendums to the agreement, permitting them to participate in ETCDs on their behalf.

In case dealing in commodity derivatives leads to delivery of physical goods and if the portfolio manager remains in possession of the physical commodity, the goods need to be disposed of within the timelines as agreed upon between the client and the portfolio manager, Sebi said.

The regulator further added that the responsibility of liquidating the physical goods shall be with the portfolio manager.

Regarding disclosures, the regulator said, the portfolio managers shall provide periodic reports to the clients regarding their exposure in ETCDs. 

Moreover, they are required to provide adequate information about risk factors, margin requirements, position limit, among others to the client while participating in ETCDs besides furnishing an exposure report to Sebi on monthly basis, the regulator said.