**Summary:**
SEBI Circular SEBI/HO/CDMRD/DDRMP/CIR/P/2020/128, issued on July 21, 2020, modifies the stress testing methodology for positions with early pay-in for all Clearing Corporations (CCs) with Commodity Derivatives Segments. This circular, issued in response to concerns about high stress loss figures on such positions, amends the Annexure to Circular SEBI/HO/CDMRD/DDRMP/CIR/2018/111 dated July 11, 2018. Specifically, when calculating residual losses, CCs are now permitted to consider the lower of either the 'margin exemption granted' or the 'value of early paid-in goods' as 'margins supporting those positions.' The circular is effective from the date of issuance and is issued under Section 11(1) of the Securities and Exchange Board of India Act, 1992, and Section 10 of the Securities Contracts Regulation Act, 1956. The purpose is to protect investors' interests, promote the development of the securities market, and regulate the securities market. The circular is available on the SEBI website (www.sebi.gov.in). For further information, Vishal V. Nair, Deputy General Manager, Division of Risk Management, Commodity Derivatives Market Regulation Department (vishaln@sebi.gov.in) can be contacted.
Key Entities Referenced
Securities and Exchange Board of India (SEBI): Regulatory body in India for securities and commodity markets.
Clearing Corporations (CCs): Organizations that manage and mitigate risks associated with clearing and settlement of trades.
Commodity Derivatives Segment: A division within Clearing Corporations dealing with commodity derivatives.
SEBI Circular SEBIHOCDMRDDRMPCIRP2018111: A previous circular issued by SEBI regarding stress testing norms, dated July 11, 2018.
Stress Testing Methodology: A process used to evaluate the potential impact of adverse market conditions on financial institutions.
Early Payin: A mechanism where clients/brokers provide funds or securities before the scheduled settlement date.
Securities and Exchange Board of India Act 1992: The act of parliament that established the Securities and Exchange Board of India.
Securities Contracts Regulation Act, 1956: An act to regulate transactions in securities.
CIRCULAR
SEBI/HO/CDMRD/DRMP/CIR/P/2020/128 July 21, 2020
To,
The Managing Directors / Chief Executive Officers,
All Clearing Corporations having Commodity Derivatives Segment
Sir / Madam,
Sub: Review of Stress Testing Methodology for Positions with Early Pay-in
1. SEBI vide Circular SEBI/HO/CDMRD/DRMP/CIR/P/2018/111 dated July 11, 2018,
inter alia, prescribed norms related Stress Testing. In consultation with Clearing
Corporations (CCs), to address the concern regarding high stress loss figures on
positions with early pay-in, following clause stands inserted at end of Part-B
provided under Annexure to the SEBI Circular SEBI/HO/CDMRD/DRMP/
CIR/P/2018/111 dated July 11, 2018:-
"h) While calculating the residual losses as per 'd' and 'f' above, for
positions on which early pay-in are given by the clients/brokers, and
margin exemption are granted on such positions, CCs are permitted to
consider the 'margin exemption granted' or 'value of early paid-in goods',
whichever is lower, as 'margins supporting those positions'.".
2. The circular shall be effective from date of issuance of the Circular.
3. This circular is issued in exercise of the powers conferred under Section 11(1) of
the Securities and Exchange Board of India Act 1992, read with Section 10 of the
Securities Contracts (Regulation) Act, 1956 to protect the interests of investors in
securities and to promote the development of, and to regulate the securities
market.
4. This circular is available on SEBI website at www.sebi.gov.in.
Yours faithfully,
Vishal V. Nair
Deputy General Manager
Division of Risk Management
Commodity Derivatives Market Regulation Department
vishaln@sebi.gov.in
Page 1 of 1