TaxTMI 
TaxTMI 
Comprehensive Risk Management Framework for National Commodity Derivatives Exchanges
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....ensive risk management framework has been finalised after 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 The norms specified by Forward Markets Commission shall continue to be in force to the extent not modified or repealed by this circular. 5.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 inve....
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....shall be done on daily basis in cash. i. Base Minimum Capital: Exposure free deposit required from all members (Trading members/Clearing members). j. Settlement Guarantee Fund (SGF): 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') M....
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....eferred. Stock Exchanges are already required to compute the same on regular basis in accordance with SEBI Circular MRD/DoP/SE/Cir-07/2005 dated February 23, 2005. e. Exchanges shall adequately diversify their collateral so as to avoid any concentration of exposure towards any single entity and the same shall be within the limits as may be prescribed by SEBI from time to time. f. Agricultural commodities to be accepted as collateral should 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 comp....
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.... not more than 2 hours between any two consecutive updates and at the end of the trading session) and the latest available scaled up WMA volatility estimates would be applied to member/client portfolios on a real time basis. 4. Extreme Loss Margin (ELM): ELM of 1% on gross open positions shall be levied and shall be deducted from the liquid assets of the clearing member on an online, real time basis. The ELM shall be implemented latest within six months of the date of this circular. 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 th....
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.... iv. These funds would be kept in a separate account by the Exchange. v. BMC would be refunded to the members at the time of surrender of membership provided that there is no unsettled claim against member and no arbitration cases are pending against the member. 11. Risk Reduction Mode (RRM) Exchanges shall ensure that the trading members/clearing members are mandatorily put in risk-reduction mode when 90% of the member's Liquid Assets available for adjustment against margins/deposits gets utilized for margins/deposits (to be complied within six months from the date of this circular coming into effect). Such risk reduction mode shall include the following: a. All unexecuted orders shall be cancelled once trading member himself or his clearing member breaches 90% collateral utilization level. b. Only orders with Immediate or Cancel attribute shall be permitted in this mode. c. All new orders shall be checked for sufficiency of margins and such potential margins shall be blocked while accepting the orders in the system. d. The trading member shall be moved back to the normal risk management mode as and when the collateral utilization level....