The Central Government has notified commodity trading contracts as financial products under the International Financial Services Centres Authority (IFSCA) Act, 2019, allowing such transactions to be brought under the regulatory framework governing the GIFT International Financial Services Centre (IFSC).
The notification formally recognises agreements for trading commodities between units operating in an IFSC and other parties as financial products. It takes effect from the date of its publication in the Official Gazette.
The move gives the IFSCA a formal regulatory basis to develop commodity trading activity at GIFT City, Gujarat. It is also part of efforts to attract international commodity trading business to India, which is currently routed through financial centres such as Singapore, Dubai, Hong Kong and Switzerland.
Regulatory Framework For Trading
The recognition of commodity trading contracts as financial products brings them within the scope of the IFSCA Act. This allows the regulator to frame rules and oversee eligible financial activities involving commodity trading in the IFSC.
The move follows recommendations by an expert committee constituted by the IFSCA to position GIFT IFSC as a global commodity trading hub. The committee had proposed bringing commodity trading and merchanting trade within the financial services framework to enable a wider range of transactions and products.
GIFT City Eyes Global Trade
The proposed commodity trading ecosystem is expected to support activities including international trading, hedging, commodity derivatives, trade financing and merchanting. These activities could allow companies to manage commodity price risks and undertake cross-border transactions through entities based in GIFT City.
IFSCA had earlier said that Indian commodity trading firms often execute international transactions from overseas financial centres because of their established regulatory frameworks and supporting banking infrastructure.
The formal recognition of commodity trading contracts is intended to help bring some of this activity back to India. The development builds on GIFT City’s efforts to expand beyond banking, insurance and fund management into a broader international financial services hub.
