MCX's clearing corporation pays Rs 2.7 crore to settle allegations of poor risk-management

The order said that "it was observed that the Applicant (MXCCL) had blocked highest margin shortage instead of cumulative margin shortage in the past 30 days from the deposits of the clearing member"

Multi Commodity Exchange Clearing Corporation Ltd (MCXCCL) has paid Rs Rs 2.7 crore to settle allegations of violations of risk-management rules. MCXCCL is a subsidiary of Multi Commodity Exchange of India (MCX)

The settlement order was issued the Securities and Exchange Board of India (SEBI) on April 1.

According to the order, an annual inspection conducted for the period from December 1, 2022 to October 31, 2023 indicated that the margin-collection mechanism by MCXCCL was not in line with SEBI's directives.

The SEBI order said, "it was observed that the Applicant (MXCCL) had blocked highest margin shortage instead of cumulative margin shortage in the past 30 days from the deposits of the clearing member for the purpose of calculation of Margin Shortfall Block Amount."

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It added, "In terms of the Circular dated September 01, 2016, in case of repeated margin/pay-in shortfalls beyond a threshold amount by any member in a month, the commodity derivatives exchanges, as a risk mitigation measure, are required to charge initial margins at a higher rate for the next one month or subject the member to a penal exposure free deposit, equal to the cumulative funds/margin shortage over the previous one month which could be kept with the exchange for the next month.

"Therefore, by blocking highest margin shortfall instead of cumulative margin shortfall from the deposits of the clearing member, the Applicant was alleged to have acted in violation of Circular dated September 01, 2016 read with Master Circulars dated August 04, 2023 and Regulation 7(4)(b) of the SECC Regulations."

MCXCCL filed an application to settle the proceedings.