The Central Government on Friday notified ‘commodity trading contract’ as a financial product under the International Financial Services Centres Authority (IFSCA) Act, 2019.
The change may help in attracting large global and Indian companies in manufacturing which have set up commodity trading in overseas hubs such as Singapore and Hong Kong.
The notification defines a commodity trading contract as a contract under which a unit of an International Financial Services Centre (IFSC) trades a commodity with another party.
“The notification recognising Commodity Trading Contracts as financial products under the IFSCA Act, 2019, marks an important step in broadening the financial services ecosystem at GIFT IFSC,” said Dipesh Shah, executive director, IFSCA.
It creates an enabling regulatory framework for international commodity trading activities through IFSC entities, opening up opportunities for greater participation by global market participants,” he added.
The notification follows earlier proposals and representations by the IFSCA to position the Gujarat-based financial hub as a global centre for commodity trading.
“It lays the foundation for bringing international commodity trading and the financial services that support it — financing, hedging, insurance and treasury management — into a connected ecosystem at GIFT City,” said Sanjay Kaul, MD & Group CEO, GIFT City.
“For India, the opportunity is to capture a greater share of the value generated around its commodity trade. For GIFT IFSC, this opens a new avenue to attract global trading businesses, deepen financial markets and create specialised employment,” he noted.
Experts noted that final rules are awaited for details on the possible commodity products and opportunities for the centre to evolve into a price-discovery and hedging hub for commodities.
Another industry player noted that the presence of international financial players in Gift-IFSC and their strong balance sheets could provide the liquidity mechanisms that international commodity markets demand.
