Sebi tweaks method for calculating Settlement Guarantee Fund in commodity

Capital markets regulator Sebi on Tuesday revised the methodology for clearing corporations with regard to computation of core Settlement Guarantee Fund corpus in commodity derivatives segment.

A core Settlement Guarantee Fund (SGF) is a corpus used for settlement of trades during defaults and all intermediaries -- stock exchanges, clearing corporations and brokers -- contribute towards it.

Sebi received representations from clearing corporations that in light of the turnover and the open interest observed at the stock exchanges in the recent times, the target corpus level prescribed in 2018 need to be reviewed and methodology for computation of core SGF corpus in commodity derivatives segment.

In its circular, the regulator said that the clearing corporations in commodity derivatives segment can now align their core SGF in terms of its framework issued in August 2014 and July 2018 and excess contribution may be returned to the contributing stakeholders on a pro-rata basis, after taking due approval from Sebi.

Earlier, clearing corporations were mandated to augment their core SGF to the respective target corpus level in the subsequent years based on overall risk, peak open interest in the previous period as well as expected growth of business in the future.

The new guideline would come into force from July 1, the Securities and Exchange Board of India (Sebi) said in a circular.

The regulator, in August 2014, prescribed norms related to core SGF, default waterfall and stress test for clearing corporations and stock exchanges. The framework provided detailed guidelines regarding computation of Minimum Required Corpus (MRC) of core SGF as well as contribution to core SGF.

Further, Sebi, in June 2018, mandated a minimum amount of MRC of Rs 10 crore for stock exchanges having commodity derivatives segment.