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TMI BlogIntroduction of Options on Commodity Indices – Product Design and Risk Management FrameworkX X X X Extracts X X X X X X X X Extracts X X X X ..... ng a Commodity Derivative segment, to introduce options on commodity indices. 2. The product design and risk management framework should be in conformity with the guidelines prescribed in the Annexure to this circular. 3. The recognised Stock Exchanges with a Commodity Derivative segment, willing to introduce trading in options on commodity indices shall take prior approval of SEBI for the same. 4. Stock Exchanges shall submit at-least past three-years data of the index constructed along with data on monthly volatility, roll over yield for the month and monthly return while seeking approval from SEBI. On approval, the Stock Exchange(s) shall also publish the above data on their website before launch of the contract. 5. Stock Exchanges s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " and "Info for Commodity Derivatives Market Regulation Department". Yours faithfully, Sandeep Kriplani General Manager Division of New Products Commodity Derivatives Market Regulation Department Tel. No: +91 22 26449265 Email: [email protected] Annexure Product Design and Risk Management Framework for Options on Commodity Indices 1. Underlying: The underlying shall be commodity indices, which shall conform to the guidelines as prescribed in the SEBI Circular No. SEBI/HO/CDMRD/DNPMP/ CIR/P/2019/71 dated June 18, 2019. 2. Eligibility Criteria for Underlying: Option contracts can be introduced on those indices on which futures contracts are available. 3. Settlement Mechanism: On exercise, options contract shall be settled in ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... To begin with, maximum tenor of contracts shall be 12 months. 11. 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 options contract. {In absence of trading in any constituent during last one hour, stock exchange shall determine appropriate methodology (in line with the methodology for determining daily closing price) to arrive at appropriate price of the constituent to be used for determining index price}. 12. Position Limits: 12.1. Client level- Higher of: 10% of the total open interest in the market in commodity index options Or 2000 lots ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scan range, volatility scan range and/or plausible changes in any other parameters impacting options price. CCs shall impose appropriate short option minimum margin, calendar spread charge, extreme loss margin, concentration margins, additional margins, pre-expiry margin, etc. for option contracts. 13.2. Margining at client level: CCs shall impose initial margins at the level of portfolio of individual client. 13.3. 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 scenarios shall be applied to client portfolios on a real time basis. 13.4. Mark to Market: CCs shall mark ..... X X X X Extracts X X X X X X X X Extracts X X X X
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