FPI access to deliverable bullion and metals contracts proposed, index derivatives on commodities coming, margin requirements easing
Commodity derivatives markets in India have a structural problem that has suppressed volumes relative to equity derivatives for years — a narrow participant base, limited product breadth and high margin requirements that raise the cost of capital for participants.
SEBI is now addressing all three simultaneously. Two consultation papers published in August 2026, alongside parallel easing of margin and SGF requirements, represent the most consequential regulatory development for MCX in several years.
The Volume Growth
MCX’s organic momentum is already impressive. In Q1FY27, options notional average daily turnover rose 3.6x year-on-year to Rs 9.9 trillion. Options premium ADTV doubled to Rs 90.9 billion. Futures ADT grew 47% year-on-year. The traded client base doubled to 1.58 million, with traded unique client codes up approximately 65% and 105% year-on-year in futures and options respectively.
“Even after this run, commodity notional and premium is only approximately 3% and 13% of equities notional and premium,” HDFC Securities notes — a comparison that frames the structural headroom available before commodity derivatives approach the relative scale of equity derivatives in India. The gap is not cyclical; it is structural, and regulatory changes are the mechanism to close it.
The FPI Consultation Paper
SEBI’s consultation paper, issued on August 11 with comments due September 1, contains two proposals that HDFC Securities characterises as widening the market rather than tweaking it at the edges.
The first proposal would allow FPIs to participate in non-agricultural index derivatives regardless of whether the underlying constituents are cash settled — SEBI’s logic being that index derivatives are always cash settled by construction, eliminating delivery risk. This opens the door for FPI participation in bullion and metals index options — a product category that does not yet exist at meaningful scale.
The second proposal is more consequential. FPIs would be allowed into non-cash-settled, physically deliverable non-agricultural contracts — including gold, silver and base metals — on the condition that they exit before the tender period. SEBI has proposed a layered safeguard: a compulsory square-off or rollover window opening at T-3, backed by automatic transfer of any residual open position to the designated trading member’s proprietary account at the T-1 closing price. This is a thoughtful regulatory design that addresses the delivery risk concern while enabling meaningful FPI participation.
The current FPI volume share at MCX is approximately 3% — against approximately 16% at equity exchanges. “MCX’s FPI volume share is only approximately 3% against approximately 16% for equity exchanges,” HDFC Securities notes.
Why Bullion
MCX’s options premium today is narrowly concentrated — crude oil and natural gas account for approximately 75% of options premium, while physically settled bullion contracts contribute only approximately 25%. Bullion has scaled meaningfully only over the past year, following the shift to monthly expiries and the introduction of mini contracts with smaller lot sizes — one-tenth for gold and one-fifth for silver. The retail accessibility improvement from these product design changes drove the recent volume surge. FPI access to deliverable bullion contracts would add institutional depth to a market that has previously lacked it.
“Allowing FPIs into deliverable contracts will boost bullion and metals options volume. This, along with index options on bullion and metals, can drive the next leg of growth — we see approximately 20-25% premium accretion,” HDFC Securities states. Additionally, reduction of margins on crude — currently at approximately 30% — and on gold and silver at approximately 10% each, provides further volume stimulus by reducing the capital required to maintain positions.
Co-Location
Co-location services — which allow high-frequency traders to place their servers physically adjacent to exchange matching engines, reducing latency — are potentially being extended to commodity derivatives. If allowed, co-location in commodities would pave the way for significantly higher HFT activity — which HDFC Securities describes as “the single-largest volume driver in equity derivatives.” The HFT ecosystem at commodity exchanges is currently underdeveloped relative to equity markets. Co-location approval would attract algorithmic liquidity providers who dramatically improve market depth and price discovery, in turn attracting further participation from institutional and retail traders.
The Bank Guarantee Risk
HDFC Securities also addresses the concern that has been an overhang on MCX — the reduction of bank-guarantee exposure for proprietary traders following regulatory changes. The brokerage’s assessment is measured: “The impact due to reduction of bank-guarantee exposure for prop traders will be gradual, maximum impact 10-15%; however, we don’t see any major impact immediately.” The regulatory tailwinds from FPI access and margin reduction are expected to more than offset this headwind.
Scorecard
| Metric | Value |
|---|---|
| Current Market Price | Rs 2,942 |
| Target Price | Rs 3,600 (unchanged) |
| Upside | 22% |
| Rating | BUY (Maintained) |
| Valuation | 45x Jun-28E core PAT + net cash |
| Q1FY27 Options Premium ADTV | Rs 90.9 billion (+2.1x YoY) |
| Q1FY27 Futures ADT Growth | +47% YoY |
| Traded Client Base | 1.58 million (doubled YoY) |
| FPI Volume Share at MCX | ~3% (vs ~16% at equity exchanges) |
| Crude Options Margin | ~30% (potential reduction lever) |
| Expected Premium Accretion from FPI | ~20-25% |
| 12-Month Stock Performance | +80% |
HDFC Securities maintains BUY with a target of Rs 3,600 — implying 22% upside from the current market price of Rs 2,942 — based on 45x June 2028 core PAT plus net cash.