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TMI BlogReview of Stress Testing Framework for Equity Derivatives segment for determining the corpus of Core Settlement Guarantee Fund (Core SGF)X X X X Extracts X X X X X X X X Extracts X X X X ..... s participants. 2. In this regard, SEBI has specified the stress testing methodologies to be adopted for determining the credit risk of a CC towards its participants. The current stress testing methodologies are grouped into hypothetical and historical scenarios. 3. For the equity derivatives segment, the stress testing methodologies prescribed by SEBI for determining loss on close-out of client/proprietary positions, under hypothetical and historical stress scenarios, comprising of price movement in respect of each underlying, are tabulated below: Table-1 Scenario Direction Movement 1a Up PSR + 1.51 x sigma (λ=0.995) x √2 1b Up PSR + 1.51 x sigma (λ=0.94) x √2 2a Down - PSR - 1.51 x sigma (λ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tility. 4.2.3. For this purpose, volatility is calculated as Exponentially Weighted Moving Average (EWMA) with λ = 0.94. 4.3. Factor Model 4.3.1. Highest 3-day, close to close, movement of NIFTY, upwards and downwards, is to be considered based on historical data since 2000. 4.3.2. The said highest upwards and downwards movement of NIFTY are multiplied by the beta (β) of the stock from a stress period to arrive at a figure representing price movement for each underlying. 4.3.3. For revaluing options, the volatility would be shocked by 100% for each underlying. 5. Choice of stress period 5.1. For each of the above stress testing models, the data for modeling returns/movements in each underlying shall be based on stres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or transfer, for the respective Market Infrastructure Institution (MII). 6.1.3. This excess amount can be transferred from ECM segment to EDX segment and can be allocated to the contributions under the head of respective MIIs only. 6.1.4. In addition, since contribution requirements to ECM are irrespective of penalties, all CCs shall be permitted a one-time transfer of penalties and the interest accrued thereon in ECM to EDX segment. It will be transferred under Penalty head in the EDX segment. Illustration Table-2 MRC for current Month (A) Total Core SGF in the segment (B) Total SGF Corpus - MRC for the month (C=B-A) Average stress loss for each month since past 12 months# (single figure shown for simplifying the example) (D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... January 2024 till the preceding month of the issuance of this circular. 7.5. Additionally, for the purpose of one-time inter-segment transfer and for the purposes of making additional contributions to the Core SGF of equity derivatives segment, the penalties credited to the Core SGF and the interest accrued on such penalties, as on last day of month of issuance of this circular, shall also be taken into account. Therefore, additional contribution would have to be brought in if MRC of next month > [MRC of current month + Penalties credited (including one time penalties transferred from SGF of cash segment) and interest accrued on such penalties as on last day of the month of issuance of this circular]. 8. Staggered contributions to the Cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the clearing volumes shall be based on daily average value (in Rs. crores) of contracts cleared by the CCs in the equity derivatives segment for each financial year. Sum of futures turnover and notional options turnover will be considered for this purpose. 9.3.1. CCs offering clearing and settlement services in the equity derivatives segment, shall jointly decide on their categorization. Initially, CCs, by means of a joint communication, shall inform their respective categorization to SEBI within 7 days of issuance of this circular. 9.3.2. Subsequently, CCs offering clearing and settlement services in the equity derivatives segment shall, within 15 days from the end of each financial year, shall inform SEBI about their respective categ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not available for the chosen stress period(s) 11.1.5. Specifying the framework for making staggered contributions to the Core SGF. 11.1.6. Any other operational aspect of this circular. 11.2. Take necessary steps to put in place systems for implementation of the circular, including necessary amendments, wherever required, to the relevant bye-laws, rules and regulations. 11.3. Bring the provisions of this circular to the notice of their members and also disseminate the same on its website. 12. The circular is being issued in exercise of powers conferred under Section 11 (1) and Section 11(2)(a) of the Securities and Exchange Board of India Act, to protect the interests of investors in securities and to promote the development of, an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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