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SEBI Modifies Core Settlement Guarantee Fund Calculation Methodology In Commodity Derivatives Segment

On Tuesday, the authority on capital markets, Sebi, changed the way clearing organizations computed the core Settlement Guarantee Fund corpus in the commodities derivatives sector.
All intermediaries, including stock exchanges, clearing companies, and brokers, contribute to a core Settlement Guarantee Fund (SGF), a corpus used to pay deals during defaults.
Clearing corporations informed SEBI that the target corpus level set for 2018 and the methodology for computing the core SGF corpus in the commodity derivatives segment need to be reviewed in light of the recent stock exchange turnover and open interest.
The regulator announced in a circular that clearing corporations in the commodity derivatives segment can now align their core SGF in accordance with its framework released in August 2014 and July 2018 and that excess contribution may be returned to the contributing stakeholders on a pro rata basis after receiving the appropriate approval from Sebi.
Previously, clearing organizations were required to increase their core SGF to the corresponding target corpus level in the following years based on overall risk, peak open interest in the prior year, as well as anticipated business growth in the future.
The Securities and Exchange Board of India (Sebi) announced in a circular that the new regulation will be in effect as of July 1.
For clearing organizations and stock exchanges, the regulator established standards for the core SGF, default waterfall, and stress test in August 2014. The framework included comprehensive instructions for calculating the contribution to the core SGF as well as the Minimum Required Corpus (MRC) of the core SGF.
Additionally, Sebi set a minimum MRC of Rs 10 crore for stock exchanges with a commodities derivatives market in June 2018.

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