Now Reading: Sebi reduces commodity derivatives stress test limit to Z-score 5
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Sebi reduces commodity derivatives stress test limit to Z-score 5
Markets regulator Sebi lowered the Z-score threshold for stress testing in commodity derivatives from 10 to 5, effective immediately. The change applies to the Core Settlement Guarantee Fund framework and uses 15…
The Story in Brief
Markets regulator Sebi lowered the Z-score threshold for stress testing in commodity derivatives from 10 to 5, effective immediately. The change applies to the Core Settlement Guarantee Fund framework and uses 15 years of historical returns to calculate price movements. Sebi said the revision was made 'with the objective of facilitating Ease of Doing Business' for market participants.
Under the old rule, price movements beyond a Z-score of 10 were replaced in peak historical returns. Now, extreme movements beyond a Z-score of 5 will be adjusted instead. Clearing corporations assess up to 15 years of commodity price data to estimate potential gains or losses over the applicable Margin Period of Risk (MPOR).
The Indian Opinion
The usual drama of 'easing compliance' versus 'weakening safeguards' misses the point. A Z-score of 10 was so stringent that it likely distorted capital requirements for genuine hedgers, while a Z-score of 5 still captures 99.97% of normal price movements under a bell curve. The real test is whether clearing corporations now recalibrate their core SGF contributions too aggressively. Watch the first quarterly stress test results under the new rule: if margins drop more than 20%, the regulator may have over-corrected.
Sources (2): legal.economictimes.indiatimes.com, ndtvprofit.com
This story was synthesised by AI from the 2 sources linked above.
Updated: this story now draws on 2 sources.
