Sebi specifies cut-off time for determining minimum threshold of margins

Markets regulator Sebi on Friday came out with cut-off time for determining minimum threshold of margins to be collected from clients in case of commodity derivative contracts. The mechanism shall be effective from April 1, 2020, Sebi said in a circular.

The regulator said that for commodity derivative contracts having trading hours beyond 5 pm, the cut-off time for determining minimum threshold shall be 5 pm. Risk parameter file (RPF) to be generated at cut-off time shall be applied on clients' end-of-day (EOD) portfolio for the purpose of determining minimum threshold of margin to be collected from clients.

Similarly, for determining minimum threshold of extreme loss margin to be collected from clients, clients' EOD portfolio shall be valued at the half-an-hour weighted average trade price arrived at 5 pm. For the commodity derivative contracts having trading till 5 pm, margin collection from clients shall be on an EOD basis.

Further, Sebi also clarified that there shall not be any change in norms regarding margin computation and collection by the clearing corporation from its members. Sebi noted that "members currently report margins collected from their clients to clearing corporations vis-à-vis the end of day (EOD) Risk Parameters File generated by the clearing corporation".

However, "in case of commodity derivative products that are traded beyond 5:00 pm, members face difficulty in collecting initial margin/extreme loss margin from their respective clients. This is because final margin requirements are crystallised at EOD, which is beyond banking hours," it added. Margin money refers to the minimum amount of capital that must be available in the account to trade futures contracts.