SEBI Reviews Margin Framework For Cash, Derivatives Segments
SEBI headquarters in Mumbai, India. (Photographer: Santosh Verma/Bloomberg)

SEBI Reviews Margin Framework For Cash, Derivatives Segments

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Markets regulator Securities and Exchange Board of India on Monday reviewed the margin framework for cash and derivatives segments, in order to bring more efficiency in the risk management system.

The move has been taken to keep pace with the changing market dynamics and to bring more efficiency in the risk management framework. The framework, which has been prepared in consultation with the capital markets regulator's Risk Management Review Committee, will come into effect from May 1 this year, SEBI said in a circular.

Margin, in market parlance, is the minimum fund or security an investor is required to pay to the stockbroker before executing a trade. This is basically part of the money collected by bourses from brokerages as upfront, before giving exposure for trading in equity and commodity derivatives.

With regard to the margin framework for the cash market, SEBI has divided value at risk margin rates in three categories based on liquidity. In respect of margin framework for derivatives, the regulator has reviewed its guidelines on volatility calculation, scan range on price as well as volatility, calendar spread charge on various products, a minimum charge on short option, extreme loss margin, and margin on consolidated crystallised obligation.

Also read: SEBI Rationalises Margin Framework For Commodity Derivatives To Check Volatility

Besides, there is a provision of additional margin for highly volatile stocks. "For securities with the intraday price movement of more than 10 percent in the underlying market for three or more days in past one month, the minimum total margins shall be equal to the maximum intraday price movement of the security observed in the underlying market in last one month," SEBI said.

This would be continued till the monthly expiry date of derivative contracts that fall after completion of three months from the date of levy, it added. For securities with the intra-day price movement of over 10 percent in the underlying market for 10 or more days in the past six months, the minimum total margins would be equal to the maximum intra-day price movement of the security observed in the underlying market in the previous six months, the regulator said.

Also read: SEBI To Tighten Eligibility Norms For Investment Advisers, Fees To Be Capped

It further said this will be continued till the monthly expiry date of derivative contracts that fall after completion of one year from the date of levy. SEBI has reiterated that risk management is primarily a responsibility of clearing corporations and the framework prescribed by the regulator is a minimum framework. It further said CCs are allowed to be more conservative as per their own perception of risk.

Earlier in January, the regulator has rationalised margin framework for the commodity derivatives segment, wherein clearing corporations need to categorise commodities as per their realised volatility.

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