Commodity trading : Sebi comes out with a cut-off time framework


RTGS and NEFT are two banking facilities that are functional round-the-clock service catering every day. The 2019 circular by Sebi is withdrawn, replaced by the new circular to be effective in January.

The regulator released a new framework through the circular released on Thursday.

Accordingly, there will be a new framework containing the cut-off time to generate the last risk parameter file. This file is used to collect margins from commodities traders.

Sebi also modified the framework that enables verification of upfront collection of margins from clients in the commodity derivatives segment. This new framework will be effective from 15 January 2022.

The circular changes the 2019 framework, in which the cut-off time for the whole process was 5 pm. Within this time, the minimum threshold of margins should be determined and collected by the members within 5 pm.

This is done, for commodity derivative contracts that are to be traded beyond banking hours. This was so due to limitations caused by the bank’s closing time of 5 pm.

But with the arrival of alternative banking facilities of RTGS and NEFT, who work round-the-clock on all days, the process can be taken beyond the banking hour. Before divulging into details let’s clarify certain concepts.

Risk parameters are the files that calculate the SPAN margins. SPAN assesses the risk of the portfolio by calculating the maximum loss which could be suffered, by it based on parameters set by an authority. They do this through 16 scenarios.

The margins are the collateral the investor has to deposit with the exchange, to cover the credit risk the holder poses for the exchange. Thus, the exchange collects the margin amount from the investor based on the risk parameters.

Through this new move, the whole process of calculation and collection in the commodity derivatives segment can be done throughout the trading hours till 11:55 pm. It is also used to generate margin obligations from the clients.

Regarding the framework for verification in the commodity derivatives segment, the verification of upfront collection of margins from clients.

The clearing corporations should send a minimum of two snapshots for contracts traded till 9 pm and three for ones till 11:30/11:55 pm.

The end of the day parameters will be determined according to the relevant risk parameter files. Before these files could be accessible for the end of the day portfolio for margin collections, that is collected till 5 pm.

Follow and connect with us on Facebook, LinkedIn & Twitter