Sebi Slashes Stress Testing Threshold in Commodity Derivatives
India's markets regulator Sebi has made a change to its stress testing framework for commodity derivatives, lowering the Z-score limit from 10 to 5. This move aims to ease compliance for market participants and is part of efforts to promote Ease of Doing Business. The revised provision will replace extreme price movements beyond a threshold in peak historical returns of all commodities with those corresponding to a Z-score of 5.
The change applies to the standardised stress testing framework prescribed under the Core Settlement Guarantee Fund (Core SGF) for commodity derivatives. Sebi's circular states that mean and sigma of returns over the applicable Margin Period of Risk (MPOR) period across 15 years would be used for calculation of the Z-score.
The modification has been made with the objective of facilitating Ease of Doing Business, according to Sebi. The revised circular comes into force immediately, making it effective from now on.