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TMI BlogOptions in Goods - Product Design and Risk Management FrameworkX X X X Extracts X X X X X X X X Extracts X X X X ..... consultation with the SEBI, have vide Notification No. S.O. 3743(E) dated October 18, 2019 declared a contract for the purchase or sale of a right to buy or sell or a right to buy and sell in future, such underlying goods, as notified vide number S.O. 3068(E), dated the 27th September, 2016 , as a derivative for the purposes of the said Act. For ease of nomenclature, the instrument notified vide the said Notification may be called as Option in Goods . 2. Stock Exchanges are now permitted to launch Option in Goods in their commodity derivatives segment. This is in addition to Options on commodity futures , guidelines which were issued vide SEBI circular SEBI/HO/CDMRD/DMP/CIR/P/2017/55 dated June 13, 2017. 3. The p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... securities and to promote the development of, and to regulate the securities market. 10.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 Market Policy and New Products Commodity Derivatives Market Regulation Department Email: [email protected] Annexure 1: Product Design and Risk Management Framework for Option in Goods 1. Underlying : Goods as notified vide number S.O. 3068(E), dated the 27 th September, 2016 under clause (bc) of section 2 of the Securities Contracts (Regulation) Act, 1956. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the price of the underlying and immediate three option series having strike prices just below the price of the underlying shall be referred as Close to the money (CTM) option series. 6.2. All option contracts belonging to CTM option series shall be exercised only on explicit instruction for exercise by the long position holders of such contracts. 6.3. All In the money (ITM) 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. 6.4. All Out of the money (OTM) option contracts, except those belonging to CTM option series, shall expire worthless. 6.5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ements sufficient to cover potential future exposure to participants/clients in the 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 destabilizing, pro-cyclical changes. Initial margin requirement shall be adequate to cover at least 99% VaR (Value at Risk). Margin Period of Risk (MPOR) shall be at least equal to thr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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