Sebi allows bullion as collateral for clearing members

It has doubled maximum requirement of total commodities collateral for a clearing member to 30 per cent

The Securities and Exchange Board of India (Sebi) has allowed bullion as collateral for a clearing member, thereby deepening the commodities derivatives markets.

The regulator has also doubled the maximum requirement of commodity collateral for a clearing member to 30 per cent from the existing 15 per cent. Non-bullion collateral should not exceed 15 per cent of total liquid assets.

“The Multi Commodity Exchange (MCX) was accepting bullion as collateral. But jeweller members were seeking a relaxation in norms from Sebi. Sebi’s move will allow more margins and deepen the market for jeweller members,” said Kishore Narne, associate director, Motilal Oswal Financial Services.

A number of members of commodity exchanges possess bullion stocks in vaults in which the exchanges hold precious metals so transfer of collateral will involve a paper exchange.

Members with bullion will now receive margins equivalent to the volume of metal they pledge. Non-jeweller members can also receive additional margins on their client’s behalf by pledging their own bullion.

Sebi said exchanges should make the necessary arrangements to enable timely liquidation of collateral accepted by them.

Exchanges may stipulate concentration limits for collateral at the member level based on their risk perception, capability to hold and arrangements for timely liquidation.

Sebi’s move will benefit MCX more than any other exchange.