Review of Volatility Scan Range (VSR) for Option contracts in Commodity Derivatives Segment
Summary
SEBI prescribes minimum Volatility Scan Range (VSR) values for option contracts in the Commodity Derivatives Segment based on commodity volatility categories. Clearing Corporations are mandated to review VSR values monthly through back-testing and implement changes from the first trading day of the following month. The circular becomes effective from April 1, 2021, exercising powers under Section 11(1) of the SEBI Act.
Text
It has, therefore, been decided, in consultation with CCs, to prescribe minimum VSR values for underlying commodities based on their volatility viz, high, medium and low as categorised in SEBI circular No. SEBI/HO/CDMRD/ DRMP/CIR/P/2020/15 dated January 27, 2020.
The VSR in respect of various categories of commodities shall be subject to following minimum values: Low Non Agri 4%, Agri 5%; Medium Non Agri 5%, Agri 6%; High Non Agri 6%, Agri 7%.
CCs (providing clearing and settlement for options) shall review the value of VSR by back testing on a monthly basis using last 3 years’ data by 15th of every month and any change in VSR shall be implemented from 1st trading day of the following month.
The back testing shall be done by using appropriate models to extract volatility (such as EWMA (Exponentially Weighted Moving Average) volatility of the underlying futures contract, implied volatility of options, etc.) over the relevant MPOR (Margin Period of Risk) period.
The circular shall be effective from the first trading day of the month of April 01, 2021.
This circular is issued in exercise of the 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 Volatility Scan Range (VSR) for Option contracts in Commodity Derivatives Segment. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.