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TMI BlogAdditional risk management norms for National Commodity Derivatives ExchangesX X X X Extracts X X X X X X X X Extracts X X X X ..... . In order to further strengthen the risk management framework of commodity derivatives markets and avoid any systemic risk, it has been decided to prescribe additional norms/modify (to the extent specified hereunder) certain existing norms on risk management at National Commodity Derivatives Exchanges. The additional/modified norms are placed at Annexure-I. 3. The norms prescribed in this circular shall be implemented by national commodity derivatives exchanges latest by December 1, 2016 , except for the norm prescribed for base minimum capital at paragraph 7 of Annexure-I, which shall be complied with latest by April 01, 2017. 4. It is emphasized that risk management is primarily the responsibility of exchanges. In cases of excessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ential future exposure to participants in the interval between the last margin collection and the close out of positions following a participant default. Exchanges shall therefore estimate the appropriate Margin Period of Risk (MPOR) for each product based on liquidity in the product and scale up the initial margins, if required. However, the MPOR for all commodity derivatives contracts shall be at least 2 days. 2. Delivery Period Margins: Delivery period margins shall be higher of: a. 3% + 5 day 99% VaR of spot price volatility Or b. 20% Exchanges may impose higher margins if deemed fit. If extant delivery period margins on certain commodities are higher than that specified above, the extant delivery period margins shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditions of market liquidity, volatility, size of position to be liquidated etc. Any tool lower in the list prescribed hereunder may be resorted to only in extremely rare occasions when the exchange reasonably expects that it may not be able to restore a matched book by choosing the alternatives above it and also records the reasons for the same in writing: a. Alternative 1: Liquidation in normal market in orderly manner (with relaxed price limits, if required); b. Alternative 2: Auction of the positions within a specified price band; c. Alternative 3: Voluntary tear-up at last mark-to-market price along with compensation (%age of last mark-to-market price equal to twice the daily price limit) and penalty (5%, to be credited to SGF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any 3. Exchange resources equal to 5% of SGF 4. SGF resources in the following order: a. Penalties and investment income on SGF b. 25% of Exchange contribution to SGF c. Remaining (non-defaulting members and exchange) contribution to SGF on pro-rata basis. 5. Remaining exchange resources (excluding INR 100 Crore*) 6. Capped additional contribution by non-defaulting members (equal to their required contribution to SGF) 7. Any remaining loss to be covered by way of pro-rata haircut to payouts. *INR 100 Crore to be excluded only when remaining exchange resources are more than INR 100 Crore. - Circular - Trade Notice - Public Notice - Instructions - Office orders Tax Management India - taxmanagementindia - taxman ..... X X X X Extracts X X X X X X X X Extracts X X X X
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