NCDEX raises margin for less liquid commodities

The National Commodity & Derivatives Exchange (NCDEX) has revised value at risk (VaR)-based initial margins for select commodities. VaR-based initial margins are part of the exchange's risk management framework.

The exchange has also decided to have margin period of risk (MPOR) of two days as a measure of underlying liquidity. This means the exchange will cover margins required for two days and that will be based on liquidity. MPOR is one of the risk measures in the commodity contracts to make it convergent with the liquidity profile of the commodity contracts. The Securities and Exchange Board of India has also been considering such actions. If Sebi comes out with revised margin for commodities, NCDEX will incorporate the changes.

Commodities that are part of the revised margin are sensitive commodities, such as sugar and chana or those having limited production or marketable surplus such as barley, chilli, coriander, guar, jeera, turmeric, etc. For broad commodities or fairly liquid commodities, the initial margin requirement will continue to cover one-day requirement, the exchange said.These changes are with effect from July 29, 2016.

According to a source, when liquidity is comparatively low or commodity is sensitive, one circuit can take away the margin kept with the exchange.