SEBI/HO/CDMRD/DRMP/CIR/P/2020/15 (Dated 27th January, 2020)
1. SEBI vide Circular CIR/CDMRD/DRMP/01/2015 dated October 01, 2015 and
SEBI/HO/CDMRD/DRMP/CIR/P/2016/77 dated September 01, 2016 prescribed Risk Management Framework
for the Commodity Derivatives Segment (CDS). These circulars, inter alia, stipulated minimum value for Initial
Margin (IM) and Margin Period of Risk (MPOR).
2. CPSS-IOSCO Principles for Financial Market Infrastructure (PFMI) inter alia prescribes under Key
Considerations for Principle 6 on margin that margining model should to the extent practicable and prudent,
limit the need for destabilising, pro-cyclical changes.
3. It is further explained under Clause 3.6.10 of PFMI that:
a. Limiting procyclicality: A CCP should appropriately address pro-cyclicality in its margin
arrangements. In this context, pro-cyclicality typically refers to changes in risk management practices
that are positively correlated with market, business, or credit cycle fluctuations and that may cause or
exacerbate financial instability.
b. For example, in a period of rising price volatility or credit risk of participants, a CCP may require
additional initial margin for a given portfolio beyond the amount required by the current margin model.
This could exacerbate market stress and volatility further, resulting in additional margin requirements.
To support this objective, a CCP could consider increasing the size of its prefunded default arrangements
to limit the need and likelihood of large or unexpected margin calls in times of market stress. These
procedures may create additional costs for CCPs and their participants in periods of low market
volatility due to higher margin or prefunded default arrangement contributions, but they may also result
in additional protection and potentially less costly and less disruptive adjustments in periods of high
market volatility.
4. In light of the above and given the wide variation of liquidity and volatility among different commodity
derivatives, it has been decided, in consultation with stakeholders, to categorize commodities as per their
realized volatility and to prescribe floor values of IM and IMPOR depending upon their categories.
5. Accordingly, norms regarding Minimum IM and minimum MPOR for commodity derivatives segment stands
revised as per the framework mentioned in the circular. The norms on risk management prescribed vide circulars
referred to at Para ‘1’ above, which are not modified shall continue to prevail.
Initial categorisation of commodities as prescribed under Para ‘5’ of the circular shall be done and notified by
CCs within 15 days of the circular. The revised norms with regard to IM, MPOR and lean period margin may
be implemented by CCs in a phased manner and shall be fully implemented within a period of three months
from the date of the circular. The corresponding update in stress testing scenarios, if applicable, shall also be
done by CCs immediately after the circular is fully implemented.
The circular is available at: https://www.sebi.gov.in/…/review-of-margin-framework…
3. MERCHANTING TRADE TRANSACTIONS (MTT) – REVISED GUIDELINES – RBI/2019-20/152
A.P. (DIR Series) Circular No.20 (Dated 23rd January, 2020)
RBI has issued a circular containing directions issued under sections 10(4) and 11(1) of the Foreign Exchange
Management Act (FEMA), 1999 (42 of 1999) without prejudice to permissions / approvals, if any, required
under any other law wherein attention of Authorised Dealer Category-I banks (AD banks) is invited to A.P.
(DIR Series) Circular No.115 dated March 28, 2014 containing directions relating to merchanting trade
transactions.
With a view to further facilitate merchanting trade transactions, the existing guidelines have been reviewed and
the revised guidelines are being issued in supersession of the A.P. (DIR Series) Circular ibid.
The circular is available at: https://www.rbi.org.in/Scripts/NotificationUser.aspx…