New Delhi : To further strengthen risk management framework of commodity derivatives market, regulator Sebi on Thursday asked exchanges to impose higher margins in case of excessive volatility. Besides, Sebi said clearing members who clear and settle only non-algo trades for other trading members are required to have minimum base capital of Rs 25 lakh.
Clearing members, who clear and settle algo trades, would continue to have requirement of Rs 50 lakh. The exchanges are required to make fresh contribution towards settlement guarantee fund (SGF) in case of any shortfall. This contribution requirement by exchange in any year is currently capped at 5 per cent of the gross revenue (net of income Tax). Now, the cap has been removed and exchanges will have to be required to meet the shortfall in full as indicated in quarterly assessments. Currently, bourses make assessment on SGF on quarterly basis.
Till clearing and settlement of trades in commodity derivatives are transferred to clearing corporations, the default waterfall of exchanges would have to use defaulting member’s money, insurance and exchange resources among others. “Risk management is primarily the responsibility of exchanges. In cases of excessive market volatility or circumstances where risk element is higher, exchanges are expected to impose higher margins and/or additional margins in the form of special/ad-hoc or other margins as considered appropriate by the exchanges,” Sebi said in a circular, reports PTI. The moves will help in further strengthening the risk management framework of commodity derivatives markets and avoiding any systemic risk.
Clearing members will have to comply with the minimum base capital requirement by April 1 next year, while other regulations pertaining to imposing higher margins in case of excessive volatility would be implemented by December 1, 2016. Sebi said that commodity exchanges will have to impose initial margins sufficient to cover its potential future exposure to participants in the interval between the last margin collection and the close out of positions following a participant default.
