India, Stock Market

SEBI Regulations: Equity Derivatives Risk Management Framework Reviewed

The latest SEBI regulations have unveiled a novel framework for strengthening risk management in order to maintain the margin system for the equity derivatives segment. The entire structure has been reviewed on the basis of the SEBI review committee’s suggestions. As per the latest development, the reimbursement of mark to market margin (MTM) would compulsorily be made by all the participants on a T+0 basis which is before the trade begins next day.

As of now, all the operating stock exchanges and corporations put forward an option for payment of MTM either for T+0 or T+1 to the trading members. Because of this, the margins were scaled up to overcome the potential losses incurred with the lapse of time in the collection of entire MTM.

With the new SEBI regulations, the Margin Period of Risk (MPOR) is brought in compliance with the core principles of financial market infrastructures. This all has been done in order to enlarge the margin period of risk, as mentioned by SEBI.

Why This Robust Change In The Risk Management Framework?

According to Devdiscourse, SEBI the market regulator has instructed the clearing corporations and stock exchanges to make an approximation of suitable MPOR. This estimation will be subjected to a minimum of two days. In addition to this, the evaluation of each equity derivative product will undertake liquidity and scale-up of initial and exposure margins. In addition to this, SEBI has also decided to specify PSR for working out of initial margin via index options and future contracts as three standards deviations.

SEBI regulations have mandated all the stock exchanges and clearing corporations to take required steps in the execution of the instructions issues in their circular. Also, the embers have been asked to communicate to SEBI in regards to this update in their monthly report. Clearing corporations and stock exchanges in International Financial Services Centre have been exempted from these updates.

[The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views and/or the official policy of the website. ]
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Neha graduated in Electronic Media and has worked with Times group for 3 years with an overall experience of 6 years. She is passionate about learning languages and is a certified French Language Expert and IELTS Trainer. Neha writes breaking cryptocurrency news stories for OWLT Market.

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