Latest News | Sebi Introduces New Stress Testing Methodologies for Equity Derivatives Segment
Get latest articles and stories on Latest News at LatestLY. Market regulator Sebi on Tuesday introduced new stress testing methodologies for the equity derivatives segment to better account for the changing market dynamics and assess risks.
New Delhi, Oct 1 (PTI) Market regulator Sebi on Tuesday introduced new stress testing methodologies for the equity derivatives segment to better account for the changing market dynamics and assess risks.
The new methodologies aim to enhance the determination of the Minimum Required Corpus (MRC) for the Core Settlement Guarantee Fund (Core SGF), Sebi said in a circular.
Sebi's previous guidelines issued in October 2023 specified methods for assessing credit risk in clearing corporations (CCs). The stress testing was based on historical and hypothetical scenarios.
Under the new stress testing methods: Sebi is adding more robust methods to address the changing market dynamics.
The new methods include Stressed Value at Risk (VaR), which uses volatility from stress periods and Monte Carlo simulations to calculate price movements, with option volatility shocked by 100 per cent.
Additionally, a filtered historic simulation adjusts past data to reflect current volatility using an Exponentially Weighted Moving Average (EWMA), and a factor model considers the highest 3-day Nifty movements adjusted by the stock's beta.
The regulator has asked clearing corporations to define, update, and review stress periods regularly, using a 3-day Stress Period of Risk.
To meet the increased corpus requirements for equity derivatives, Sebi said that clearing corporations can transfer excess funds from the equity cash segment (ECM) to the equity derivatives segment (EDX), following specific conditions.
For example, CCs must maintain at least 50 per cent of the minimum required corpus (MRC) in each segment.
(The above story is verified and authored by Press Trust of India (PTI) staff. PTI, India’s premier news agency, employs more than 400 journalists and 500 stringers to cover almost every district and small town in India.. The views appearing in the above post do not reflect the opinions of LatestLY)