Sebi lays down risk mgt norms for regional commodity bourses

Markets regulator Sebi today issued a comprehensive risk management framework for regional commodity derivatives exchanges, including deposits required for members and margins need to be levied.
The circular will be implemented by April 1, 2016, the Securities and Exchange Board of India (Sebi) said.
All recognised associations under the Forward Contracts (Regulation) Act, 1952 are deemed to be stock exchanges under the Securities Contracts (Regulation) Act, 1956, with effect from September 28, 2015, the day when merger of commodity markets regulator FMC with Sebi became effective.
Issuing detailed guidelines today, Sebi said regional commodity derivate exchanges will continue with their practice of keeping exposure free member deposits at the current level.

The exchanges will levy minimum ordinary margins of four per cent on the open outstanding positions. Also, they can charge appropriate delivery period margins, additional margins among others based on their evaluation.
Sebi said that bourses have the right to impose additional risk containment measures over and above the risk containment system mandated by it.

"All applicable margins shall be collected by exchanges before start of trading on the next trading day. If the member's collateral is insufficient to cover the required margin and deposit requirements, member shall not be allowed by exchanges to further increase his open positions," Sebi said.

It further said that exchanges will levy ordinary margins at the level of each individual client comprising his positions in futures contracts across different maturities.
"For member level margin computation, margins shall be grossed across various clients. The proprietary positions of the member should also be treated as that of a client for margin computation," the regulator noted.
Mark to market settlement on all open positions of clients/members will be done on a daily basis in cash. The daily settlement price will be reckoned and disseminated by the exchange at the end of every trading day.
The exchanges will collect collateral from their members only in the form of cash, pledging of bank fixed deposits and bank guarantee.