Margin call beyond banking hours result in inability of the members and client to transfer funds to the clearing corporation despite having ready funds available with them.
The market regulator SEBI announced on Friday evening that with effect from 1st April 2020, a new Cut-off time for margin computation at 5.00 pm will be applicable for commodities that are traded till 11:30 pm.
Indian commodity derivative market has extended trading hours of almost 14- 15 hours. The period coincides with the time zone of East Asian market, Middle East and also with the European and American market to the large extent. While agri commodity trade ends by 5.00 pm, metals and energy trade continues up to 11.30/11.55 pm. Most of the commodity contracts in the metals and energy space see price volatility after opening of European and American market.
Members currently report margins collected from their clients to clearing corporations (CCs) vis – à – vis the End of Day (EOD) , VaR ( Value at risk ) file generated by the CC. In case of commodity derivative products that are traded beyond 5:00 PM, members face difficulty in collecting Initial Margin (IM)/Extreme Loss Margin from their respective clients in the scenario of increased price volatility. Margin call beyond banking hours result in inability of the members and client to transfer funds to the clearing corporation despite having ready funds available with them. Moreover, In the exchange system, it was reported as Shortfall in margin at members end thereof liable for penalty. This provision needed revision so that members should not suffer by paying unnecessary penalty.
“This is a yet another progressive step by the regulators. It was a systematic requirement for the smooth functioning of commodity markets.” Mr. Sanjit Prasad, MD & CEO, ICEX
“We had made a submission to Sebi which was accepted. Members were facing problems in computing margins for depositing in bank account the next day. Now, everyone in the trade is aware of the margins they would have to pay the next day for smooth transition of payment and trade system,” said Narinder Wadhwa, president, Commodity Participants Association of India (CPAI).
The market intermediaries too applauded the move. Mr. Shrini Viswanath, Co-Founder, Upstox, “The SEBI circular on margining system of commodity derivatives has addressed a systematic requirement for smooth functioning of commodity markets. We welcome this step by SEBI as it will strengthen Indian Commodity Markets.”
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