To further strengthen risk management, commodity exchange MCX today said it will impose concentration margin at clearing member level on contracts where the open interest exceeds Rs 250 crore.
The concentration margin, to be applicable from December 1, will be over and above all other margins. This margin is levied on large positions held by the member as a risk mitigation measure to take care of the liquidation risk.
"...With a view to further strengthen the Risk Management Framework; the Exchange has decided to introduce concentration margin as an additional risk management measure. The concentration margin will be levied at clearing member level," MCX said in a circular.
"Concentration Margin shall be levied on contracts in which the open interest value exceeds the threshold value of Rs 250 crore. Concentration Margin shall be applicable at contract level," it added.
The clearing member's open interest in the contract shall be compared with the market wide open interest in a given contract.
The concentration margin would be levied at one per cent if clearing member's open interest in the contract is 20-25 per cent of the market-wide open interest in that contract. The margin will be 2 per cent if the clearing member's open interest in the contract is 25 per cent and above compared with the market-wide open interest.
"The concentration margin corresponding to a slab shall be applied only on incremental open interest for that slab," the circular said.
"Concentration margin shall be over and above all other margins as may be applicable," it said, adding that provisions of this circular would be applicable from December 1, 2016.
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