Risk management for equity derivatives on cards: Sebi

Sebi put in place a more robust risk management framework with regard to margin system for the equity derivatives segment. The framework has been prepared on the basis of recommendation by Sebi's Risk Management Review Committee.

Now, the payment of mark to market margin (MTM) would mandatorily be made by all the members on T+0 basis -- before start of trading on the next day, as per a circular.

Currently, stock exchanges and clearing corporations offer a choice to the trading members to opt for payment of MTM either before the start
of trading on the next day (T+0) or on the next day (T+1).

This would be with scaled up margins to cover the potential for losses over the time elapsed in the collection of MTM. To bring Margin Period of Risk (MPOR) in greater conformity with the principles for financial market infrastructures, Sebi has increased the margin period of risk to two days from one day at present.

Additionally, the regulator has asked stock exchanges and clearing corporations to estimate the appropriate MPOR, subject to a minimum of two days, for each equity derivative product based on liquidity and scale up the initial margins and exposure margins accordingly. For initial margins, the revised MPOR would be given effect by way of scaling up the 'price scan range' used for computing the worst scenario loss.