Core SGF and standardised stress testing for credit risk for commodity derivatives

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..... D/DRMP/ClR/P,2018/52 dated March 21, 2018 SEBI had inter-alia prescribed that post transfer of clearing and settlement functions from commodity derivatives exchanges to Clearing Corporations, Clearing Corporations shall be required comply with the risk management norms prescribed by SEBI for commodity derivatives exchanges. 3. Vide circular CIR/MRD/DRMNP/25/2014 dated August 27, 2014 SEBI had issued norms related to Core Settlement Guarantee Fund, default waterfall, stress testing, back testing etc. for recognised Clearing Corporations and Stock Exchanges. 4. It has been decided that Clearing Corporations clearing commodity derivatives transactions shall comply with the provisions of SEBI circular dated August 27, 2014, The said circular .....

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..... Part A. Scenarios Historical Scenarios 1 Peak Historical Return Price movement in respect of each underlying over the MPOR period during the last 15 years to be considered: Scenario IA: Maximum percentage rise over MPOR period Scenario 1B: Maximum percentage fall over MPOR period 2 Peak historical price volatility Historical price volatility (EWMA volatility) in respect of each commodity during the previous 15 years is to be considered. Percentage price movement equal to 3.5 times the peak historical volatility adjusted for applicable MPOR period of the commodity shall be considered (subject to a maximum of 110% of the price movement considered for the commodity under the peak historical return scenario): Scenario 2A: Percent .....

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..... . Exchanges shall carry out stress tests using each of the scenarios given in Part A as follows - a. By stressing positions in all commodities simultaneously b. By first identifying top 10 commodities based on OI and stressing 1 commodity at a time (ignoring positions in other commodities and the corresponding margins) Part B. Methodology The percentage price movements identified in each of the above scenarios shall be applied to the commodity price on the day for which the stress test is being done. All open positions shall be assumed to be squared up at the theoretical price corresponding to the revised prices/volatility of the underlying in each of the scenarios. For each clearing member, the credit exposure to Clearing Corporat .....

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