Sebi asks stock exchanges to impose pre-expiry margins to check negative commodity prices

Sebi asks stock exchanges to impose pre-expiry margins to check negative commodity prices

Mumbai: The Securities and Exchange Board of India (Sebi) said stock exchanges will have to impose pre-expiry margins on cash settled contracts wherein the underlying commodity is deemed susceptible to possibility of near zero or negative prices.

The regulator said these margins will have to be levied five days ahead of the expiry date and they will increase by 5% every day.

Last year in September, Sebi had proposed an alternate risk management framework that would be applicable in case of near zero or negative prices for any underlying commodities or futures.

A Sebi committee on risk management review had discussed the matter of negative crude oil price event.

“In this regard, one of the suggestions of Risk Management Review Committee was that Indian Exchanges should consider introducing some mechanism to encourage significant reduction of Open Interest as the contract approaches the expiry date,” Sebi said in a circular on Tuesday.

Last year in April, crude oil prices had fallen below zero for the first time in history. The demand for oil crashed because of lockdown across the globe.

The new margin norms will be effective from April 1,2021.

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