In a consultation paper, the regulator has proposed reducing the Z-score used for historical stress testing in commodity derivatives to five from the existing 10, and revising the coverage requirement of the core settlement guarantee fund to account for the simultaneous default of the top three clearing members, instead of factoring in 50 per cent of the credit exposure arising from the default of all clearing members.
Under the current framework, clearing corporations are required to conduct standardised stress testing using peak historical price movements over a 15-year period, with extreme returns capped at a Z-score of 10. Market participants have argued that the threshold is overly conservative and that a Z-score of five would still adequately cover “extreme but plausible” market scenarios, while reducing excessive margin and capital requirements.
Sebi said representations were also received seeking a review of the SGF coverage norms, particularly the requirement to account for half of the credit exposure arising from the default of all clearing members. The regulator noted that global principles for financial market infrastructures require systemically important central counterparties to meet at least a “Cover 2” standard, while others need to meet a “Cover 1” standard.
The proposed changes were examined by a working group on agricultural commodity derivatives and later deliberated by Sebi’s Risk Management Review Committee, both of which recommended lowering the Z-score and replacing the existing SGF coverage framework with a requirement based on the simultaneous default of at least three clearing members causing the highest credit exposure.
Sebi tightens pledge invocation norms
The Securities and Exchange Board of India (Sebi) has tightened rules governing the creation and invocation of pledges of securities through the depository system, requiring lenders to give shareholders a reasonable notice before selling pledged shares. Under the revised framework, pledgees — typically lenders — will be required to provide reasonable notice to the pledger before invoking and selling pledged securities. The move is aimed at strengthening investor protection and ensuring compliance with contractual safeguards prescribed under law.
Sebi withdraws calendar spread margin benefit
The Securities and Exchange Board of India (Sebi) has withdrawn the calendar spread margin benefit for single-stock derivatives on the day of expiry, aligning the treatment of such contracts with index derivatives. The regulator has said the benefit of offsetting positions across different expiries will not be available on the expiry day for single-stock derivative contracts expiring on that day. Calendar spread margin benefits allow traders to hold offsetting positions in different expiries at lower margin requirements. While such benefits are already withdrawn for index derivatives on expiry day, they were available for single-stock derivatives. Sebi has clarified that margin calculations for calendar spread positions involving expiries other than the contract expiring on a given day will remain unchanged.
Sebi mulls relaxations for REITs, InvITs
The Securities and Exchange Board of India (Sebi) has proposed a series of ease-of-doing-business measures for real estate investment trusts (Reits) and infrastructure investment trusts (InvITs), including greater flexibility in investments, borrowing norms and treatment of special purpose vehicles (SPVs) after the end of concession periods. Among the key proposals, Sebi has suggested allowing InvITs to continue holding investments in SPVs even after the expiry or termination of concession agreements, subject to conditions and enhanced disclosures. The regulator has also proposed expanding the scope of investments by REITs and InvITs in liquid mutual fund schemes. Sebi said the proposals are aimed at addressing operational challenges based on inputs from industry associations.
 "Securities and Exchange Board of India, Sebi")