Commodity trading: SEBI comes out with cut-off time framework for risk parameter file generation

Capital markets regulator SEBI on Thursday came out with a framework pertaining to cut-off time for generation of last risk parameter file used for collecting margins from commodities traders.

Also, the regulator modified the framework prescribed for enabling verification of upfront collection of margins from clients in commodity derivatives segment.

The new framework will be effective from January 15, 2022, the Securities and Exchange Board of India (SEBI) said in a circular.

The regulator, in November 2019, had mandated that the cut-off time for the purpose of determining minimum threshold of margins to be collected by members from their clients will be 5 pm for commodity derivative contracts that are traded beyond banking hours.

This was done due to the limitations with availability of banking channels beyond 5 pm. As both banking facilities — RTGS and NEFT — are functional round-the-clock on all days now, SEBI said its circular issued in November 2019 “stands withdrawn”.

As both banking facilities — RTGS and NEFT — are functional round-the-clock on all days now, SEBI said its circular issued in November 2019 “stands withdrawn”.

“Consequently, the risk parameter files currently used by the clearing corporations for collecting margins from the members shall also be used for generating margin obligations from the clients throughout the trading hours in the commodity derivatives segment,” SEBI said.

With regard to framework for enabling verification of upfront collection of margins from clients, SEBI said for commodity derivatives segment, clearing corporations will send an additional minimum two snapshots for commodity derivative contracts which are traded till 9 pm, and additional minimum three snapshots for the commodity derivatives contracts which are traded till 11:30/11:55 pm.

End of the day margins will be determined as per the relevant risk parameter files, it added.

Although trading in commodity derivatives is happening till midnight, SEBI had earlier prescribed that risk parameter file of 5 PM will applicable on end of day portfolio for margin collection from clients.