The Securities and Exchange Board of India vide notification dated 27th January 2020 has revised its margin framework in the equity and commodity derivatives segments as part of its effort to boost liquidity and bring down trading cost.
Key Highlights of the notification:
- SEBI has revised the norms regarding minimum initial margin and minimum margin period of risk (MPOR) depending upon their categories.
- Clearing Corporations (CCs) shall categorize their commodities into three categories of volatility such as low, medium and high based upon the realized volatility for last three years.
- Realized volatility shall be calculated from series of daily log normal return of main near month future contracts.
- Exchange having maximum average daily turnover across all derivative contracts on the respective commodity based on last six months’ period shall be termed as Lead Exchange.
- In addition, the regulator has prescribed minimum initial margin and MPOR for agriculture and non-agriculture commodities based on volatility.
- It is reiterated that risk management is primarily a responsibility of CCs and the framework prescribed by SEBI is minimum framework CCs are allowed to be more Conservative as per their own perception of risk.
- CCs shall also disclose detailed break up of various applicable margins on contracts cleared by them along with volatility on their websites.
- Initial categorization of commodities shall be done and notified by CCs within 15 days of this circular, further The revised norms with regard to IM, MPOR and lean period margin may be implemented by CCs in a phased manner and shall be fully implemented within a period of three months from the date of the circular.
Click here to read the Notification.
