Centre Notifies Commodity Trading Contracts as Financial Products Under IFSCA Act

The Central Government has notified commodity trading contracts as financial products under the International Financial Services Centres Authority (IFSCA) Act, 2019.  

According to news reports, the notification, issued on Friday, brings commodity trading within the financial products framework applicable to entities operating at Gujarat International Finance Tec-City (GIFT City). 

Definition of Commodity Trading Contracts 

The Gazette notification defines a commodity trading contract as an agreement under which a unit of an International Financial Services Centre (IFSC) trades a commodity with another party. 

The provision came into effect from the date of its publication in the Official Gazette. It follows proposals and representations made by IFSCA to establish a framework for international commodity trading through GIFT IFSC. 

Global Commodity Trading Platform at GIFT City 

Earlier this year, the IFSCA board approved the establishment of a Global Commodity Trading Platform (GCTP) at GIFT City. The proposed platform will cover international commodity trading, merchanting trade, trade finance and risk management services. 

The initiative is intended to bring some of the commodity trading currently conducted through overseas centres, including Singapore, Dubai, Hong Kong and Switzerland, to India. 

An expert committee constituted by IFSCA in 2024 had pointed out that India, one of the world's largest importers of crude oil, metals and other commodities, remains exposed to international price fluctuations and supply-chain disruptions.  

The committee recommended a dedicated framework for commodity trading and related services at GIFT IFSC. 

Financing and Other Financial Services 

IFSCA Executive Director Dipesh Shah said the notification provides a regulatory framework for international commodity trading through IFSC entities. He also referred to the possibility of increased participation from global market participants. 

GIFT City MD and Group CEO Sanjay Kaul said the framework covers services linked to commodity trading, including financing, hedging, insurance and treasury management. He said it could help India retain a larger share of the value generated through its commodity trade. 

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Conclusion 

Detailed rules covering eligible commodities and trading activities are yet to be issued. These will clarify the scope of operations permitted under the framework and the opportunities for commodity price discovery and hedging at GIFT IFSC. 

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