Please find the following updates under SEBI as on 25th Feb 2020.
SEBI has, from time to time, put in place various risk containment measures to address the risks involved in the cash and derivatives market. With a view to keeping up pace with the changing market dynamics and to bring more efficiency in the risk management framework, a comprehensive review of the margin framework was done in consultation with the Risk Management Review Committee (RMRC) of SEBI. Based on the review, it has been decided to effect the following changes to the existing risk management framework.
Margin framework for Cash Market
VaR Margin Rates
The VaR margin rates shall be as follows for different groups of stocks:
| Liquidity Categorization | VaR Margin Rate |
| Group I | Based on 6σ, subject to minimum of 9% |
| Group II | Based on 6σ, subject to minimum of 21.5% |
| Group III | 50% if traded at least once per week on any stock exchange; 75% otherwise |
Note: In case of ETFs that track broad based market indices and do not include ETFs which track sectoral indices, the VaR margin rate shall be 6 sigma, subject to a minimum of 6%.
Extreme Loss Margin The Extreme Loss Margin shall be 3.5% for any stock and 2% for ETFs that track broad based market indices and do not include ETFs which track sectoral indices.
Margin framework for Derivatives (Index Derivatives, Single Stock Derivatives, Currency and Interest Rate Derivatives)
Volatility calculation The value of λ, the parameter which determines how rapidly volatility estimation changes in the Exponential Weighted Moving Average (EWMA) method, shall be fixed at 0.995. The value of λ shall, accordingly, also get changed for volatility calculation in the cash market.
Price Scan Range The Price Scan Range in respect of various products shall be as follows:
| Product | Price Scan Range |
| Index derivatives | Based on 6σ, scaled up by √2 subject to at least 9.3% of the underlying price after considering scaling up.In case of index option contracts with residual maturity of more than 9 months, the price scan range shall be based on 6σ, scaled up by √2 subject to at least 17.7% of the underlying price after considering scaling up. |
| Single stock derivatives | Based on 6σ, scaled up by √2 subject to at least 14.2% of the underlying price after considering scaling up.The price scan range thus arrived shall be further scaled up by √3, if the impact cost of the security (as used for categorization of securities for margining in Cash Market) is greater than 1%. |
| Currency and interest rate derivatives | Based on 6σ, subject to the minimum percentage of underlying price as tabulated below Currency/Interest Rate derivativeMinimum percentage of underlying PriceUSDINR1.50%EURINR2.15%GBPINR2.25%JPYINR2.65%EURUSD2.50%GBPUSD2.50%USDJPY2.50%Interest Rate Derivatives1.75%91 Day T Bill0.065%MIBOR5.50% |
Volatility Scan Range The Volatility Scan Range in respect of various products shall be as follows:
| Product | Volatility Scan Range |
| Index derivatives | 25% of annualized EWMA volatility subject to minimum 4% |
| Single stock derivatives | 25% of annualized EWMA volatility subject to minimum 10% |
| Currency and interest rate derivatives | 25% of annualized EWMA volatility subject to minimum 3% |
Short Option Minimum Charge There shall be no separate short option minimum charge for index derivatives, single stock derivatives, currency and interest rate derivatives.
Margin on consolidated crystallized obligationThe margin on consolidated crystallized obligation in derivatives shall represent:
| On intraday basis | Payable crystallized obligations based on the closed out futures positions and payable/receivable premium at client level. |
| At end-of-day | Payable obligations at client level considering all futures and options positions. |
Intraday basis
On an intraday basis, the net payable/receivable amount at client level shall be calculated using:
1. Premium payable/receivable
2. Futures crystallized profit or loss (calculated based on weighted average prices of trades executed).
If the overall amount at client level is payable, such amount shall be the intraday consolidated crystallized obligation margin for the client.
End-of-day basis
At the end of day, the payable/receivable amount at client level shall be calculated using:
1. Futures mark to market profit/loss to be settled
2. Options premium payable/receivable
3. Options exercise/assignment for expired contracts
4. Futures final settlement for expired contracts
If the overall amount at client level is payable, such amount shall be the endof-day consolidated crystallized obligation margin for the client.
The margin on consolidated crystallized obligations shall replace the net buy premium, intraday crystallized losses, assignment margin and futures final settlement margin levied currently.
The margin on consolidated crystallized obligations shall be released on completion of settlement.
Additional Margin for highly volatile stocks
For securities with intra-day price movement (maximum of [High-Low], [HighPrevious Close], [Low-Previous Close]) of more than 10% in the underlying market for 3 or more days in last one month, the minimum total margins shall be equal to the maximum intra-day price movement of the security observed in the underlying market in last one month. The same shall be continued till monthly expiry date of derivative contracts which falls after completion of three months from date of levy.
For securities with intra-day price movement (maximum of [High-Low], [HighPrevious Close], [Low-Previous Close]) of more than 10% in the underlying market for 10 or more days in last six months, the minimum total margins shall be equal to the maximum intraday price movement of the security observed in the underlying market in last six months. The same shall be continued till monthly expiry date of derivative contracts which falls after completion of one year from date of levy
The provisions of this Circular shall come into effect from May 01, 2020.
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