RBI/2007-08/303
A.P. (DIR Series) Circular No.41

April   28, 2008

To,

All Category – I Authorised Dealer Banks

Madam / Sir,

Foreign investment in Commodity Exchanges
- Amendment to the Foreign Direct Investment Scheme

Attention of Authorised Dealer Category - I (AD Category - I) banks is invited to Schedule I to Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, notified vide FEMA Notification No.20/2000-RB dated May 3, 2000, as amended from time to time.

2. It has been decided in consultation with Government of India to allow foreign investment in Commodity Exchanges subject to the following conditions :

i) There would be a composite ceiling of 49% Foreign Investment, with a FDI limit of 26% and an FII limit of 23%.

ii)  FDI will be allowed with specific approval of the Government.

iii) The FII purchases in equity of Commodity Exchanges will be restricted only to the secondary markets.

iv) Foreign Investment in Commodity Exchanges would also be subject to compliance with the regulations issued, in this regard, by the Forward Market Commission.

A copy of Press Note 2 (2008 series) dated March 12, 2008 issued in this regard is enclosed.

3. AD Category – I banks may bring the contents of this circular to the notice of their constituents and customers concerned.

4. Necessary amendments to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 are being issued separately.

5. The directions in this circular have been issued under Sections 10(4) and 11(1) of Foreign Exchange Management Act, 1999 (42 of 1999) and is without prejudice to permissions / approvals, if any, required under any other law.

Yours faithfully,

(Salim Gangadharan)
Chief General Manager-in-Charge