A meeting of market regulator Securities and Exchange Board of India (Sebi) today decided to allow Category-III alternative investment funds (AIFs) to participate in the commodity derivatives market, although subject to certain conditions.
Category III AIFs may participate in all commodity derivatives products that are being traded on the commodity derivatives exchanges as 'clients' and shall be subjected to all the rules, regulations and instructions, position limit norms as may be applicable to clients, issued by Sebi and exchanges from time to time.
Such AIFs can invest not more than ten per cent of the investable funds in one underlying commodity. Category III AIFs may engage in leverage or borrow subject to consent from the investors in the fund and subject to a maximum limit, as specified by Sebi from time to time.
Category III AIFs should make disclosure in private placement memorandum issued to the investors about investment in commodity derivatives. The funds should obtain consent of existing investor(s) if they intend to invest in commodity derivatives and exit opportunity should be provided to dissenting investor(s).
If applicable, AIF should also comply with relevant RBI notifications and all other guidelines issued by the RBI under Foreign Exchange Management Act, 1999 from time to time.
Category III AIF should be subject to the reporting requirements as may be specified by Sebi.
The participation of Category III AIF in the commodity derivatives market should be subject to the compliance of the provisions of SEBI (Alternative Investment Funds) Regulations, 2012 and circulars issued thereunder.
Sebi said the provisions of this circular shall come into effect from the date of the circular.