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TMI BlogDesign of Commodity Indices and Product Design for Futures on Commodity IndicesX X X X Extracts X X X X X X X X Extracts X X X X ..... nducive for the overall development of the commodity derivatives market, attracting broad based participation, enhancing liquidity, facilitating hedging and bringing in more depth to the commodity derivatives market. 2. In this regard, the Commodity Derivatives Advisory Committee (CDAC) of SEBI had inter-alia recommended introduction of options, derivatives on commodity indices and at later stage products such as weather and freight derivatives. SEBI has already permitted commodity options in Indian commodity derivatives markets. Based on the above recommendation of CDAC and comments received on SEBI consultation paper dated January 16, 2019 on design of commodity indices and product design for futures on commodity indices, it has now been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia Act, 1992, to protect the interests of investors in securities and to promote the development of, and to regulate the securities market. 8. Exchanges are advised to: i. make necessary amendments to the relevant bye-laws, rules and regulations. ii. bring the provisions of this circular to the notice of the stock brokers of the Exchange and also to disseminate the same on their website. iii. communicate to SEBI, the status of the implementation of the provisions of this circular 9. This circular is available on SEBI website www.sebi.gov.in under the category "Circulars" and "Info for Commodity Derivatives". Yours faithfully, Vikas Sukhwal General Manager Division of New Products and Market Policy Commodity Derivatives Market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the index shall meet this criterion and no single constituent not meeting this criterion shall have a weightage of more than 15% in the index) However, the above turnover requirements shall not be applicable for sectoral indices subject to exchanges ensuring that constituent futures have adequate liquidity. 4. Re-balancing: a. The index constituents and their weightages shall be at least annually selected and rebalanced. Exchanges shall decide and announce/disclose the constituents and weightages of the index at least three months before the actual re-balancing of the index. Exchanges shall ensure that constituents meet the eligibility criteria as given in para 3 while deciding the constituents and weightages for rebalancing. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c. In case of an index having multiple commodity groups, exchanges may put in place maximum and minimum weightages for a commodity group. 6. Computation and roll over: a. The index value shall ordinarily be computed using the nearest expiry futures prices of the index constituents so that prices of liquid contracts are used for index construction. b. Exchange shall put in place a transparent methodology (including the dates of roll over, the various constituents which will be rolled over from nearest to next expiry, weights of nearest and next expiry contracts during each of the roll over day for such constituents etc.) for gradual roll over of the index constituents to next expiry taking into account the liquidity in the underlyi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the market in commodity index futures Or 10000 lots 6. Daily Price Limit: Stock Exchanges shall decide appropriate daily price limits for commodity index futures based on historical price movement of the indices. 7. Settlement Mechanism: Final Settlement for futures on commodity index shall be done in cash. 8. Final Settlement Price: The Final Settlement Price shall be the underlying index price arrived at based on Volume Weightage Average Price of the constituents of the underlying index between 4:00 pm and 5:00 pm on the expiry day of the Index futures contract. {In absence of trading in any constituent during last one hour, exchange shall determine appropriate methodology (in line with the methodology for determining d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Initial margin requirement shall be adequate to cover at least 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. Accordingly, exchanges shall fix prudent price scan range, and/or plausible changes in any other parameters impacting futures price. b. Margining at client level: Exchanges shall impose initial margins at the level of portfolio of individual client. c. Real time computation: Though the margining models may update various scenarios of parameter changes (underlying price, volatility etc.) at discrete time points each day (at least every two hours), the latest available scena ..... X X X X Extracts X X X X X X X X Extracts X X X X
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