Description

SEBI modifies SGF coverage norms for commodity derivatives, raising the simultaneous default threshold from 2 to 3 clearing members and adding provisions for case-by-case exemptions.

Summary

SEBI has revised the Settlement Guarantee Fund (SGF) coverage norms for the Commodity Derivatives Segment via circular HO/47/16/14(1)2026-MRD-POD1/I/7115/2026 dated March 16, 2026. NSE Clearing Limited (NCL) has communicated this change to all members. The key modification raises the simultaneous default threshold for SGF coverage calculation from at least 2 clearing members to at least 3 clearing members, and a new clause grants SEBI discretionary power to grant exemptions from SGF provisions on a case-by-case basis.

Key Points

  • The simultaneous default threshold for SGF stress testing coverage has been increased from 2 clearing members to 3 clearing members (and their associates) causing the highest credit exposure.
  • The previous requirement to also cover 50% of credit exposure from simultaneous default of all clearing members has been removed.
  • A new paragraph 23 has been inserted into Annexure O of the SEBI Master Circular for Commodity Derivatives Segment (Aug 04, 2023), allowing SEBI to grant exemptions or relaxations from SGF provisions on a case-by-case basis.
  • The change is based on stakeholder representations, recommendations from the Risk Management Review Committee (RMRC), and public comments received.
  • The objective is to facilitate Ease of Doing Business.

Regulatory Changes

Modified Provision (Part C, Paragraph 22, Annexure O):

Old text required coverage for:

  • Credit exposure from simultaneous default of at least 2 clearing members causing highest credit exposure.
  • 50% of credit exposure from simultaneous default of all clearing members.

New text requires coverage for:

  • Credit exposure from simultaneous default of at least 3 clearing members (and their associates) causing highest credit exposure.

New Provision (Paragraph 23, Annexure O):

SEBI may, after due deliberation, grant exemptions or relaxations from strict enforcement of SGF provisions in the commodity derivatives segment on a case-by-case basis, taking into account prevailing market conditions, adequacy of applicable risk management framework, and investor protection objectives.

Compliance Requirements

  • All Recognised Clearing Corporations having a Commodity Derivatives Segment must update their SGF stress testing methodology to reflect the new 3-member simultaneous default threshold.
  • Clearing Corporations should review and revise their Core SGF sizing models accordingly.
  • No specific action required from trading members directly; this is primarily a clearing corporation-level compliance requirement.

Important Dates

  • Effective Date: Immediate (circular came into force with immediate effect from March 16, 2026).
  • SEBI Circular Date: March 16, 2026.
  • NSE Clearing Circular Date: March 18, 2026.

Impact Assessment

This change is expected to reduce the minimum required Core SGF corpus for clearing corporations in the commodity derivatives segment, as the coverage threshold is relaxed (from 2 to 3 members, while removing the 50% all-member default requirement). This may:

  • Lower the financial burden on clearing corporations and indirectly on clearing members contributing to the SGF.
  • Improve ease of doing business for participants in the commodity derivatives segment.
  • The new exemption clause (Para 23) provides regulatory flexibility during stressed market conditions, which could be beneficial during market disruptions.
  • Overall systemic risk implications are moderate; the change was driven by RMRC recommendation and public consultation, suggesting adequate deliberation on risk trade-offs.

Impact Justification

Operational change to SGF coverage methodology affecting clearing corporations in commodity derivatives segment; improves ease of doing business by reducing minimum default threshold from 2 to 3 members, lowering capital requirements for clearing members.