Foreign brokers offered Indian toehold

India may let overseas securities firms such as Merrill Lynch offer brokerage services as a first step in opening the nation's US$458 billion ($710 billion) commodity futures markets.

Forward Markets Commission chairman S. Sundareshan said the Government, which is changing rules to allow overseas investment in gold, silver, non-ferrous metals and oil, had had "expressions of interest from several foreign funds" to enter its commodities markets.

India, the second-biggest producer of sugar and rice, is the largest buyer of gold and hosts the world's No. 3 bullion bourse after exchanges in London and Tokyo. Overseas companies are banned from trading in India's 500 commodity markets.

"Competition is going to get tougher," Kishore Narne, head of Anand Rathi Commodities, said in Mumbai. "It seems to be a clever way of allowing foreigners in."

Fidelity International, a unit of the world's biggest money manager, paid US$49 million for 9 per cent of Multi Commodity Exchange of India, the nation's largest commodities exchange, in February. Goldman Sachs owns a 7 per cent stake in the National Commodity & Derivatives Exchange, the second-largest.

The commission said the value of the trades in India's 24 largest commodities markets rose almost fourfold to US$458 billion in the year ended March 31.

Sundareshan said he was seeking to lift the ban on foreign investment funds from trading in commodity futures.

"The market here is too young and sensibilities are not ripe enough to allow foreign investors across the market," he said.

Domestic traders, producers and consuming companies are the main participants in India's commodities markets.

As brokerages, foreign companies will be limited to offering futures contracts to domestic clients. They will remain barred from taking speculative positions or trading on proprietary accounts.

A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.

- BLOOMBERG