Options in Goods - Product Design and Risk Management Framework

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....de Notification No. S.O. 3743(E) dated October 18, 2019 declared a contract for the purchase or sale of a right to buy or sell or a right to buy and sell in future, such underlying goods, as notified vide number S.O. 3068(E), dated the 27th September, 2016, as a derivative for the purposes of the said Act. For ease of nomenclature, the instrument notified vide the said Notification may be called as 'Option in Goods'. 2. Stock Exchanges are now permitted to launch 'Option in Goods' in their commodity derivatives segment. This is in addition to 'Options on commodity futures', guidelines which were issued vide SEBI circular SEBI/HO/CDMRD/DMP/CIR/P/2017/55 dated June 13, 2017. 3. The product design and risk management framework would be i....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....circular is available on SEBI website www.sebi.gov.in under the category "Circulars" and "Info for Commodity Derivatives". Yours faithfully, Vikas Sukhwal General Manager Division of Market Policy and New Products Commodity Derivatives Market Regulation Department Email: [email protected]   Annexure 1: Product Design and Risk Management Framework for Option in Goods 1. Underlying: Goods as notified vide number S.O. 3068(E), dated the 27^th September, 2016 under clause (bc) of section 2 of the Securities Contracts (Regulation) Act, 1956. 2. Eligibility Criteria for Underlying: Only those goods shall be eligible as underlying for these options, on which exchange either is already trading the futures contrac....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....ption series shall be exercised only on 'explicit instruction' for exercise by the long position holders of such contracts. 6.3. All In the money (ITM) option contracts, except those belonging to 'CTM' option series, shall be exercised automatically, unless 'contrary instruction' has been given by long position holders of such contracts for not doing so. 6.4. All Out of the money (OTM) option contracts, except those belonging to 'CTM' option series, shall expire worthless. 6.5. All exercised contracts within an option series shall be assigned to short positions in that series in a fair and non-preferential manner. 7. Trading Hours: Trading hours shall be same as those of corresponding futures contract. 8. Expiry Day: Exchange....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....ressed market conditions), b) have an appropriate method for measuring credit exposure that accounts for relevant risk factors and portfolio effects, and c) to the extent practicable and prudent, limit the need for destabilizing, pro-cyclical changes. Initial margin requirement shall be adequate to cover at least 99% VaR (Value at Risk). Margin Period of Risk (MPOR) shall be at least equal to three days or MPOR of corresponding futures contracts, whichever is higher. In case of portfolio based margining, this requirement applies to each portfolio's distribution of future exposure. Accordingly, CCs shall fix prudent price scan range, volatility scan range and/or plausible changes in any other parameters impacting options price. C....