Sebi reviews margin framework for cash, derivatives segments

February 25,2020

To bring more efficiency in the risk management system, market regulator Sebi has conducted a review of the margin framework for cash and derivatives segments.

To bring more efficiency in the risk management system, market regulator Sebi has conducted a review of the margin framework for cash and derivatives segments.

The Securities and Exchange Board of India (Sebi) said that it has from time to time put in place various measures to address the risks involved in the cash and derivatives market.

"With a view to keeping up pace with the changing market dynamics and to bring more efficiency in the risk management framework, a comprehensive review of the margin framework was done in consultation with the 'Risk Management Review Committee' of Sebi," the regulator said in a circular on Monday.

According to the circular, for securities with intra-day price movement of more than 10 per cent in the underlying market for "three or more days in last one month, the minimum total margins shall be equal to the maximum intra-day price movement of the security observed in the underlying market in last one month."

"The same shall be continued till monthly expiry date of derivative contracts which falls after completion of three months from date of levy," Sebi said.

As per the circular, for securities with intra-day price movement of more than 10 per cent in the underlying market for "10 or more days in last six months, the minimum total margins shall be equal to the maximum intra-day price movement of the security observed in the underlying market in the last six months".

"The same shall be continued till monthly expiry date of derivative contracts which falls after completion of one year from date of levy," it said.

Besides, the regulator also said that risk management is primarily the responsibility of the Clearing Corporations (CCs) and the framework prescribed by Sebi is of a minimum framework.

"CCs are allowed to be more conservative as per their own perception of risk," the circular said.

"The provisions of this circular shall come into effect from May 1, 2020," it added.