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TMI BlogRisk Management Framework for Dedicated Debt Segment on Stock ExchangesX X X X Extracts X X X X X X X X Extracts X X X X ..... Subsequent to introduction of Debt Segment on stock exchanges, market feedback has been received on various issues including need for DVP-3 settlement in corporate bond trades. For enabling settlement on DVP-3 basis in corporate bonds trades, implementation of appropriate risk management framework is necessary. Stock exchanges have submitted proposals for risk management framework and these were discussed in Secondary Market Advisory Committee. Based on discussions, it has been decided that the risk management framework for corporate bond trades shall be as specified herein. 3. Feedback from market participants and stock exchanges also pointed towards need for further clarity/ amendments to certain provisions of SEBI circular dated Janua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on/eligibility criteria to be specified by the exchanges. 6.2.2.1 The minimum selection/eligibility criteria for privately issued corporate bonds to be eligible for DVP-3 settlement shall include the following: (a) The corporate bonds shall have a minimum rating of AA+ (or similar nomenclature). (b) The yield spread of corporate bonds over similar residual tenure government securities shall not exceed 150 basis points. (c) New corporate bonds listed during the month shall also be eligible for DVP-3 settlement if they meet the rating and yield spread criteria stated at (a) and (b) above. (d) In case of existing corporate bonds, only liquid bonds shall be permitted. The stock exchanges may consider one or more following factors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k Exchanges may follow a VaR estimation model similar to Interest Rate Futures as prescribed in SEBI circular SEBI/DNPD/Cir-46/2009 dated August 28, 2009. 7.2.1.3. The Initial Margin shall be deducted upfront from the liquid assets of the member taking into account gross open positions. 7.2.2 Extreme Loss Margin (ELM): The ELM shall cover the expected loss in situations that go beyond those envisaged in risk estimates used in the initial margins. The ELM for any bond shall be 2% of the traded price expressed in terms of clean price. It would be deducted upfront from the total liquid assets of the member. 7.3 Liquid Assets: The liquid assets for meeting margin requirements may be deposited in the following form: (a) At least ..... X X X X Extracts X X X X X X X X Extracts X X X X
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