SEBI eases margin norms for commodity derivatives positions backed by early pay-in of goods

The Securities and Exchange Board of India (SEBI) has clarified the applicability of benefits available under the early pay-in mechanism in the commodity derivatives segment, allowing clearing corporations greater flexibility in exempting margins for positions backed by certified goods deposited in accredited warehouses.

The Securities and Exchange Board of India (SEBI) has clarified the applicability of benefits available under the early pay-in mechanism in the commodity derivatives segment, allowing clearing corporations greater flexibility in exempting margins for positions backed by certified goods deposited in accredited warehouses. In a circular issued on June 19, the market regulator revised provisions relating to the Early Pay-in Facility under its master circular governing the commodity derivatives segment.

Under the revised framework, clearing corporations will continue to provide an early pay-in facility that enables market participants to deposit certified goods in clearing corporation-accredited warehouses against relevant commodity derivatives contracts. The circular noted, "Clearing Corporations shall provide early pay-in facility to market participants permitting them to deposit certified goods to the Clearing Corporation accredited warehouse against relevant derivatives contracts."

SEBI said that for positions against which early pay-in has been made, clearing corporations may, based on their risk assessment, exempt the imposition of all types of margins. However, they will continue to collect mark-to-market (MTM) margins from such market participants for such positions. "For such positions against which early pay-in has been made, based on risk perception, Clearing Corporations may exempt imposition of all types of margins. However, Clearing Corporations shall continue to collect mark to market margins from such market participants against such positions." the circular added.

The regulator stated that the revision follows representations received from stakeholders and deliberations by the Working Group on the review of the delivery and settlement framework for agricultural commodity derivatives, as well as discussions within the Commodity Derivatives Advisory Committee (CDAC). The circular will come into force from September 21 this year. Stock exchanges and clearing corporations operating commodity derivatives segments have been directed to make the necessary system changes for implementation and inform their members accordingly.

SEBI said the circular has been issued with the objective of protecting investor interests and promoting the development and regulation of the securities market. (ANI)