Additional risk management norms for National Commodity Derivatives Exchanges

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....risk management framework of commodity derivatives markets and avoid any systemic risk, it has been decided to prescribe additional norms/modify (to the extent specified hereunder) certain existing norms on risk management at National Commodity Derivatives Exchanges. The additional/modified norms are placed at Annexure-I. 3. The norms prescribed in this circular shall be implemented by national commodity derivatives exchanges latest by December 1, 2016, except for the norm prescribed for base minimum capital at paragraph 7 of Annexure-I, which shall be complied with latest by April 01, 2017. 4. It is emphasized that risk management is primarily the responsibility of exchanges. In cases of excessive market volatility or circumstances where....

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....se out of positions following a participant default. Exchanges shall therefore estimate the appropriate Margin Period of Risk (MPOR) for each product based on liquidity in the product and scale up the initial margins, if required. However, the MPOR for all commodity derivatives contracts shall be at least 2 days. 2. Delivery Period Margins: Delivery period margins shall be higher of: a. 3% + 5 day 99% VaR of spot price volatility Or b. 20% Exchanges may impose higher margins if deemed fit. If extant delivery period margins on certain commodities are higher than that specified above, the extant delivery period margins shall continue. 3. Measures in case of repeated shortfall in margin/pay-in: In case of repeated margin/pay-in shor....

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.... resorted to only in extremely rare occasions when the exchange reasonably expects that it may not be able to restore a matched book by choosing the alternatives above it and also records the reasons for the same in writing: a. Alternative 1: Liquidation in normal market in orderly manner (with relaxed price limits, if required); b. Alternative 2: Auction of the positions within a specified price band; c. Alternative 3: Voluntary tear-up at last mark-to-market price along with compensation (%age of last mark-to-market price equal to twice the daily price limit) and penalty (5%, to be credited to SGF); d. Alternative 4: Partial tear-up (pro-rata against members/clients having opposite positions) at last mark-to-market price along wit....