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TMI BlogOptions on Commodity Futures- Product Design and Risk Management FrameworkX X X X Extracts X X X X X X X X Extracts X X X X ..... ng issued to stipulate necessary guidelines with regard to the product design and risk management framework to be adopted for trading in options on commodity futures. 2. The product design and risk management framework would be in conformity with the guidelines prescribed in Annexure 1 enclosed with this circular. 3. Eligibility criteria for selection of underlying Commodity Futures for Options: Options would be permitted for trading on a commodity derivatives exchange only on those commodity futures as underlying, which are traded on its platform and satisfy both the criteria specified below on the respective exchange: a. The underlying 'Futures contracts' on the corresponding commodity shall be amongst the top five futu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Circulars and Info for Commodity Derivatives . Yours faithfully, Vikas Sukhwal Deputy General Manager Division of Market Policy Commodity Derivatives Market Regulation Department Email: [email protected] Annexure 1 A. Product Design for Options on Commodity Futures: 1. Underlying: Commodity futures contract (of a specified month) traded on the corresponding exchange. 2. Settlement Method : On exercise, option position shall devolve into underlying futures position as follows:- long call position shall devolve into long position in the underlying futures contract long put position shall devolve into short position in the underlying futures contract short call position s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) option contracts, except those belonging to CTM option series, shall be exercised automatically, unless contrary instruction has been given by long position holders of such contracts for not doing so. 5.4. All Out of the money (OTM) option contracts, except those belonging to CTM option series, shall expire worthless. 5.5. All exercised contracts within an option series shall be assigned to short positions in that series in a fair and non-preferential manner. 6. Trading Hours : Trading hours shall be same as those of corresponding futures contract. 7. Expiry Day : Expiry day of options contracts shall be decided by Exchange based upon period of high liquidity of underlying futures contract and shall be part of option c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interval between the last margin collection and the close out of positions following a participant/client default. The model should a) use a conservative estimate of the time horizons for close out of the positions (including in stressed market conditions), b) have an appropriate method for measuring credit exposure that accounts for relevant risk factors and portfolio effects, and c) to the extent practicable and prudent, limit the need for destabilising, pro-cyclical changes. Initial margin requirement shall be adequate to cover 99% VaR (Value at Risk) and Margin Period of Risk (MPOR) shall be at least two days. In case of portfolio based margining, this requirement applies to each portfolio s distribution of future exposure. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (along with the estimated increase) at least few days in advance, and/or, based on their risk perception, may also consider gradually collecting increased margins during the last few days so as to have adequate margins to cover the risk of futures position that will be created on devolvement of options into futures. b) As per the provisions of SEBI circular SEBI/HO/CDMRD/ DRMP/ CIR/P /2016/80 dated September 07, 2016, penalty is levied on members for short-collection/non-collection of the initial margins. Penalty for such short-collection/non-collection due to increase in initial margins resulting from devolvement of options into futures may not be levied by Exchanges for the first day. -------- - Circular - Trade Notice - Pu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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