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TMI BlogReview of Stress Testing Framework for Equity Derivatives segment for determining the corpus of Core Settlement Guarantee Fund (Core SGF)X X X X Extracts X X X X X X X X Extracts X X X X ..... articipants. 2. In this regard, SEBI has specified the stress testing methodologies to be adopted for determining the credit risk of a CC towards its participants. The current stress testing methodologies are grouped into hypothetical and historical scenarios. 3. For the equity derivatives segment, the stress testing methodologies prescribed by SEBI for determining loss on close-out of client/proprietary positions, under hypothetical and historical stress scenarios, comprising of price movement in respect of each underlying, are tabulated below: Table-1 Scenario Direction Movement 1a Up PSR + 1.5 1 x sigma ( =0.995) x 2 1b Up PSR + 1.5 1 x sigma ( =0.94) x 2 2a Down PSR 1.5 1 x sigma ( =0.995) x 2 2b Down PSR 1.5 1 x sigma ( =0.94) x 2 3 Up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) with = 0.94. 4.3. Factor Model 4.3.1. Highest 3-day, close to close, movement of NIFTY, upwards and downwards, is to be considered based on historical data since 2000. 4.3.2. The said highest upwards and downwards movement of NIFTY are multiplied by the beta ( ) of the stock from a stress period to arrive at a figure representing price movement for each underlying. 4.3.3. For revaluing options, the volatility would be shocked by 100% for each underlying. 5. Choice of stress period 5.1. For each of the above stress testing models, the data for modeling returns/movements in each underlying shall be based on stress period(s), as specified by the CCs. 5.2. Further, the CCs shall jointly frame a policy on updation and review of stress periods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... segment and can be allocated to the contributions under the head of respective MIIs only. 6.1.4. In addition, since contribution requirements to ECM are irrespective of penalties, all CCs shall be permitted a one-time transfer of penalties and the interest accrued thereon in ECM to EDX segment. It will be transferred under Penalty head in the EDX segment. Illustration Table-2 MRC for current Month (A) Total Core SGF in the segment (B) Total SGF Corpus MRC for the month (C=B-A) Average stress loss for each month since past 12 months # (single figure shown for simplifying the example) (D) Upper limit of the amount that can be transferred to Core SGF of equity derivatives segment, if (D) for each of the last 12 months 50% (A) (E =100% of C) 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l contributions to the Core SGF of equity derivatives segment, the penalties credited to the Core SGF and the interest accrued on such penalties, as on last day of month of issuance of this circular, shall also be taken into account. Therefore, additional contribution would have to be brought in if MRC of next month [MRC of current month + Penalties credited (including one time penalties transferred from SGF of cash segment) and interest accrued on such penalties as on last day of the month of issuance of this circular]. 8. Staggered contributions to the Core SGF of equity derivatives segment: 8.1. Further, on an ongoing basis, the subsequent contributions (after the initial contribution) to the Core SFG, based on monthly MRC requirements, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional options turnover will be considered for this purpose. 9.3.1. CCs offering clearing and settlement services in the equity derivatives segment, shall jointly decide on their categorization. Initially, CCs, by means of a joint communication, shall inform their respective categorization to SEBI within 7 days of issuance of this circular. 9.3.2. Subsequently, CCs offering clearing and settlement services in the equity derivatives segment shall, within 15 days from the end of each financial year, shall inform SEBI about their respective categorization, by means of a joint communication. 9.4. For CCs classified as Category B, as per the provisions of para 9.2. above, credit exposure shall be calculated by considering a simultaneous default ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ps to put in place systems for implementation of the circular, including necessary amendments, wherever required, to the relevant bye-laws, rules and regulations. 11.3. Bring the provisions of this circular to the notice of their members and also disseminate the same on its website. 12. The circular is being issued in exercise of powers conferred under Section 11 (1) and Section 11(2)(a) of the Securities and Exchange Board of India Act , to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and regulate business in stock exchanges and any other securities markets. Yours faithfully, Vishal Shukla General Manager Market Regulation Department Tel.No: 022-26449959 Email: vi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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