The Securities and Exchange Board of India (SEBI) has clarified the applicability of benefits under the early pay-in mechanism in the commodity derivatives segment, granting clearing corporations greater flexibility to exempt margins for positions backed by certified goods deposited in accredited warehouses. The revision, announced in a circular dated June 19, amends provisions of the master circular governing the commodity derivatives segment.
Revised Early Pay-In Facility
Under the updated framework, clearing corporations must continue offering an early pay-in facility that allows market participants to deposit certified goods in clearing corporation-accredited warehouses against relevant commodity derivatives contracts. The circular states: "Clearing Corporations shall provide early pay-in facility to market participants permitting them to deposit certified goods to the Clearing Corporation accredited warehouse against relevant derivatives contracts."
Margin Exemption and MTM Collection
For positions against which early pay-in has been made, clearing corporations may, based on their risk assessment, exempt the imposition of all types of margins. However, they must continue to collect mark-to-market (MTM) margins from such participants for those positions. The circular adds: "For such positions against which early pay-in has been made, based on risk perception, Clearing Corporations may exempt imposition of all types of margins. However, Clearing Corporations shall continue to collect mark to market margins from such market participants against such positions."
Background and Effective Date
The revision follows representations from stakeholders and deliberations by the Working Group on the review of the delivery and settlement framework for agricultural commodity derivatives, as well as discussions within the Commodity Derivatives Advisory Committee (CDAC). The circular will come into force from September 21 this year. Stock exchanges and clearing corporations operating commodity derivatives segments have been directed to implement necessary system changes and inform their members accordingly.
SEBI stated that the circular aims to protect investor interests and promote the development and regulation of the securities market. The new norms are expected to enhance liquidity and efficiency in commodity derivatives trading by reducing margin requirements for physically backed positions.
