SEBI reviews stress testing methodology for commodity derivatives

Markets regulator Sebi on Tuesday reviewed stress testing methodology for commodity derivatives to address the concern regarding high stress loss figures on positions with early pay-in.

The decision has been taken in consultation with clearing corporations (CCs), Securities and Exchange Board of India (Sebi) said in a circular.

While calculating the residual losses, for positions on which early pay-in are given by the clients/brokers, and margin exemption are granted on such positions, CCs have been permitted to consider the 'margin exemption granted' or 'value of early paid-in goods', whichever is lower, as 'margins supporting those positions, it added.

For each client, residual loss will be equal to loss due to client's close-out position minus margin supporting his specific positions.

According to Jimeet Modi, founder and CEO of Samco Group, the review will have no implications for traders or investors. It only has a limited impact to the extent of computing commodity clearing corporation's solvency levels in cases of stress tests conducted by them.