In order to strengthen the risk management framework, Securities and Exchange Board of India (SEBI) will introduce pre-expiry margins on cash settled contracts with effect from April 1, 2021. Under this underlying commodities are deemed to be susceptible to possible near zero or negative prices.
- These margins will be levied during the last five trading days prior to expiry date, wherein they will increase by 5% every day.
- These will be applicable on certain commodities under the Alternate Risk Management Framework (ARMF).
Key Points:
–The decision to have pre-expiry margin has been taken after consultations with clearing corporations (CCs).
–These margins are aimed at encouraging significant reduction of open interest as the contract approaches the expiry date.
Background:
Due to the unprecedented event of negative final settlement price in the crude oil futures markets in 2020, the Risk Management Review Committee (RMRC) of SEBI reviewed the issues for the same. After that, it was suggested that Indian Exchanges should introduce some mechanism to encourage significant reduction of open interest as the contract approaches the expiry date. This led to the introduction of pre-expiry margins.
Recent Related News:
i.SEBI has given approval to the deal between Future Group and Reliance Retail Ventures Ltd(RRVL), where Future group will sell its retail, wholesale, logistics and warehouse businesses to Reliance Retail for Rs 24,713 crore.
ii.On November 11, 2020 Insurance Regulatory and Development Authority of India(IRDAI) gave its final approval for the merger of HDFC ERGO Health Insurance (formerly Apollo Munich Health Insurance Co Ltd) with HDFC ERGO General Insurance Co Ltd (HDFC ERGO).
About Securities and Exchange Board of India (SEBI):
Establishment– 1992
Chairman– Ajay Tyagi
Headquarters– Mumbai, Maharashtra
