Securities and commodity market regulator SEBI on Tuesday said it is reviewing stress testing methodology for commodity derivatives to address the concern regarding high stress loss figures on positions with early pay-in. The decision has been taken in consultation with clearing corporations (CCs), said SEBI.
While calculating the residual losses, for positions on which early pay-in are given by the clients/brokers, and margin exemption are granted on such positions, CCs have been permitted to consider the ‘margin exemption granted’ or ‘value of early paid-in goods’, whichever is lower, as ‘margins supporting those positions’, SEBI circular said.
For each client, residual loss will be equal to loss the due to the client’s close-out position minus margin supporting his specific positions. The stress test pertains to Minimum Required Corpus (MRC) of core Settlement Guarantee Fund (SGF).
The regulator had fixed minimum threshold value of MRC for commodity derivatives segment of any stock exchange at ₹10 crore.
Sonam Chandwani, Managing Partner at KS Legal & Associates, said: “The markets watchdog has announced a review of stress testing methodology for commodity derivatives to address the concern regarding high stress loss figures on positions with early pay-in. It is pertinent to note that such review is likely to have a limited impact to the extent of computing commodity clearing corporation’s solvency levels in cases of stress tests conducted by them, thus leading to negligible implications for traders and investors alike.”