Sebi lowers stress testing limit for commodity derivatives
The Securities and Exchange Board of India (Sebi) has announced a significant reduction in the Z-score limit for stress testing in commodity derivatives, lowering it to five from ten. This strategic shift is designed to enhance compliance and streamline processes within the standardized framework, ensuring that price variations tied to a Z-score of five facilitate a more accessible business…
Sebi, India's markets regulator, has reduced the Z-score threshold for stress testing in the commodity derivatives market from 10 to 5, according to a circular released on Wednesday. The change aims to simplify compliance for market participants.
Previously, price movements corresponding to a Z-score of 10 were replaced with extreme price movements beyond that threshold in the peak historical returns of all commodities. With the new Z-score limit of 5, market participants can now use price movements corresponding to a Z-score of 5 to replace extreme price movements beyond that threshold in the peak historical returns of all commodities.
The revised provision applies to the standardized stress testing framework under the Core Settlement Guarantee Fund (Core SGF) for commodity derivatives. Sebi stated that the modification is meant to facilitate ease of doing business. The change takes effect immediately.
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