- SEBI has eased rules for the Settlement Guarantee Fund in commodity derivatives clearing
- Stress testing now assumes default of at least three clearing members and associates
- The rule covering 50% exposure from all members' default has been removed
The Securities and Exchange Board of India (SEBI) has eased rules governing the Settlement Guarantee Fund for clearing corporations operating in the commodity derivatives segment.
In a circular issued Monday, the regulator modified stress testing requirements that determine the size of the Core Settlement Guarantee Fund maintained by clearing corporations.
Earlier rules required clearing corporations to cover the larger of two scenarios during stress tests. These included the credit exposure arising from the simultaneous default of at least two clearing members, and 50% of the credit exposure arising from the simultaneous default of all clearing members.
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Under the revised framework, clearing corporations will now calculate exposure assuming the simultaneous default of at least three clearing members and their associates causing the highest credit exposure.
The requirement to also cover 50% of the exposure from the default of all clearing members has been removed.
The changes follow representations from market participants and recommendations from the Risk Management Review Committee, according to the circular. The regulator said the move is aimed at facilitating ease of doing business while maintaining adequate risk safeguards.
The revision could reduce the size of settlement guarantee funds that clearing corporations are required to maintain, lowering the capital burden on clearing members contributing to these funds.
Separately, SEBI has introduced a provision allowing it to grant exemptions or relaxations from Settlement Guarantee Fund requirements on a case by case basis after considering prevailing market conditions and the adequacy of risk management frameworks.
The circular takes effect immediately.
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