Review of risk management framework for Equity Derivatives Segment
Summary
SEBI mandates that Recognized Stock Exchanges and Clearing Corporations increase the Margin Period of Risk (MPOR) to a minimum of two days for equity derivatives. The circular requires scaling up initial margins based on this MPOR and stipulates specific Price Scan Range parameters for index contracts. Additionally, mark-to-market margin payments are made mandatory on a T+0 basis before the start of trading.
Text
Exchanges/ Clearing Corporations shall estimate the appropriate MPOR, subject to a minimum of 2 days, for each equity derivative product based on liquidity therein and scale up the initial margins and exposure margins accordingly.
It has further been decided to stipulate PSR for computation of initial margins across index options and index futures contracts as three standard deviations (3σ) or 5% of the underlying value, whichever is higher. The Short Option Minimum Charge (SOMC) for index option contracts also stands revised to 5%.
Additionally, in order to make risk management framework more robust, the payment of MTM shall now mandatorily be made by all the members on T+0 basis i.e. before start of trading on the next day.
Stock Exchanges and Clearing Corporations are directed to: a) take necessary steps to put in place systems for implementation of the circular... b) bring the provisions of this circular to the notice of their members... c) communicate to SEBI, the status of implementation...
The provision(s) of this circular shall come into effect from January 21, 2019.
This circular is being issued in exercise of powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992, to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.
Source: SecMarx — Review of risk management framework for Equity Derivatives Segment. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.