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TMI BlogReview of Margin Framework for Commodity Derivatives SegmentX X X X Extracts X X X X X X X X Extracts X X X X ..... alue for Initial Margin(IM) and Margin Period of Risk (MPOR). 2. CPSS-IOSCO Principles for Financial Market Infrastructure (PFMI) inter alia prescribes under Key Considerations for Principle 6 on margin that margining model should to the extent practicable and prudent, limit the need for destabilising, pro-cyclical changes. 3. It is further explained under Clause 3.6.10 of PFMI that: Limiting procyclicality: A CCP should appropriately address pro-cyclicality in its margin arrangements. In this context, pro-cyclicality typically refers to changes in risk management practices that are positively correlated with market, business, or credit cycle fluctuations and that may cause or exacerbate financial instability. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporations (CCs) shall categorise their commodities into three categories of volatility based upon the realized volatility for last three years as given below: - Volatility Category of Commodity Realized Annualized Volatility criteria Low 0 to 15% Medium Above 15 % to 20% High Above 20% b. Realized volatility shall be calculated from series of daily log normal return of main near month future contracts of the respective commodity. The series of dai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 e. It is also clarified that floor values prescribed for IM in table above need not be scaled up by MPOR. f. CCs shall review the categories of all commodities once in every six months period based upon past three years data. Commodity may be moved from higher volatility category to lower category only if it satisfies criteria of the revised category of volatility for two consecutive reviews. However, movement from a lower to higher volatility category shall be done based upon a single review. g. The categorisation shall be done on 1st March and 1st September of each year on rolling basis and changes if any shall be made applicable from 1st April and 1st October respectively of each year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within 15 days of the circular. The revised norms with regard to IM, MPOR and lean period margin may be implemented by CCs in a phased manner and shall be fully implemented within a period of three months from the date of the circular. The corresponding update in stress testing scenarios, if applicable, shall also be done by CCs immediately after the circular is fully implemented. 10. This circular is issued in exercise of the powers conferred under Section 11(1) of the Securities and Exchange Board of India Act 1992 , read with Section 10 of the Securities Contracts (Regulation) Act, 1956 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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