Sebi Proposes Changes for Commodity Derivatives

New Delhi, Feb 5 (PTI) Markets regulator Sebi on Thursday proposed changes to stress-testing norms and the coverage of the Settlement Guarantee Fund (SGF) for the commodity derivatives segment.

The proposals include reducing the Z-score used in historical stress-testing scenarios from 10 to 5, with Sebi noting that a lower threshold would still capture "extreme but plausible" market shocks that have been observed historically or could credibly occur.

In its consultation paper, the regulator said the proposed reduction would apply only to historical stress-testing scenarios.

Sebi has also proposed revising SGF coverage by removing the requirement to cover 50 per cent of credit exposure arising from the default of all clearing members. Instead, SGF coverage would be based on the simultaneous default of at least three clearing members and their associates with the highest exposure.

The proposals follow representations from market participants and were examined by a working group on agricultural commodity derivatives, which recommended dropping the 50 per cent exposure requirement and adopting a top-three default-based approach.

The recommendations were subsequently deliberated and endorsed by Sebi's Risk Management Review Committee.

The Securities and Exchange Board of India (Sebi) has invited public comments on the proposals till February 26.