TaxTMI 
TaxTMI 
Comprehensive Risk Management Framework for National Commodity Derivatives Exchanges
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.... a due consultative process with the exchanges. The detailed risk management framework is placed at Annexure-I. 3. The provisions of this circular shall be implemented by national commodity derivatives exchanges latest by January 1, 2016 unless specified otherwise in any specific clause of this circular. 4. The norms specified by Forward Markets Commission shall continue to be in force to the extent not modified or repealed by this circular. 5. The exchanges are also advised to: i. ensure that their risk management framework is in line with the provisions contained in the annexure and take steps to make necessary amendments to the relevant bye-laws, rules and regulations for the implementation of the same. ii. bring the provisions of this circular to the notice of their members and also to disseminate the same on their website. iii. communicate to SEBI, the status of implementation of the provisions of this circular. 6. This circular is issued in exercise of the powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992, to protect the interests of investors in securities and to promote the development of, and to regulate the securities ....
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.... Exchanges shall maintain SGF which shall be used by Exchanges only for the purpose of providing settlement guarantee. 2. Liquid Assets: The types of liquid assets acceptable by Exchanges from their members and the applicable haircuts and concentration limits are listed below: Item Minimum Haircut (see Note 'a') Limits Cash Equivalents Cash 0 No limit Bank fixed deposits 0 No limit Bank guarantees 0 Limit on exchange's exposure to a single bank (see Note 'b') Securities of the Central Government 10% No limit Units of liquid mutual funds or government securities mutual funds (by whatever name called which invest in government securities) 10% No limit Other Liquid Assets Liquid (Group-I) Equity Shares (see Note 'd') Same as the VaR margin for the respective shares (see note 'd') Limit on exchange's exposure to a single issuer (see Note 'e') Mutual fund units other than those listed under cash equivalents Same as the VaR margin for the units computed using the traded price on stock exchange, if available, or else, using the NAV of the unit treating it as a liquid security (as per methodology given in Para 5.1 of circular MRD/DoP/SE/Cir-07/2005 dated February....
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....d be of same quality specification which is deliverable under the contract specification of agricultural commodities derivatives being traded on the Exchange. g. Exchanges shall accept liquid assets as collateral only as per the list of liquid assets specified in the table above. However, exchanges may decide not to accept certain types of liquid assets specified in the above list based on their risk perception, capability to hold and arrangements for timely liquidation. Exchanges may stipulate concentration limits at member level / across all members as may be necessary. h. Exchanges shall make necessary arrangements to enable timely liquidation of collaterals accepted by them. 3. Initial Margins (IM) Currently Exchanges are computing VaR based initial margins using Exponentially Weighted Moving Average (EWMA) method to obtain the volatility estimate and then calculating initial margin by multiplying the volatility estimate by scaling factor. In order to bring uniformity in calculation of IM across all Exchanges, following is prescribed: a. VaR Based: The Initial Margin requirement shall be so as to cover a 99% VaR over one day horizon. In order to achieve this, the estimated....
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....ircular. Until the time any exchange starts charging ELM, the minimum value of initial margins shall be subject to following floor values:- * Minimum IM For Nickel: 6% * Minimum IM for other commodities:5% 5. Additional Margins: Exchanges may levy Additional Margins based on their evaluation in specific situations as may be necessary. 6. Tender Period Margin: Exchanges shall levy Tender period/Pre-expiry margin which shall be increased gradually every day beginning from the pre-determined number of days before the expiry of the contract as applicable. Exchanges shall determine the quantum of tender period margin as appropriate based on the risk characteristics of the particular commodity. 7. Delivery Period Margin: Appropriate delivery period margin shall be levied by Exchanges on the long and short positions marked for delivery till the pay-in is completed by the member. Once delivery period margin is levied, all other applicable margins may be released. 8. Margin Collection and Enforcement: All applicable margins shall be deducted by Exchanges from the Liquid Assets of the clearing members on an online, real time basis. Margins applicable on client positions have to ....