The Securities and Exchange Board of India vide its notification dated 21st September 2020 has issued an alternative risk management framework to handle a scenario of ‘near zero’ and negative prices in commodity futures, for which Sebi has constituted a task force of clearing corporations and market participants to review the risk management framework in such cases.
The alternate risk management framework (ARMF) will be applicable in such cases of near zero and negative prices for any underlying commodities futures and the commodities that need specialised storage space in physical markets, which, if not followed, may cause environmental hazards or have other external implications and those commodities that cannot be disposed of or destroyed with ease may be in principle treated as susceptible to the possibility of near zero and negative prices.
The clearing corporations (CCs) will have to ensure the readiness of their systems to implement the prescribed framework within 60 days.
However, CCs which do not presently provide for the clearing and settlement services of any such susceptible commodity, are not required to update their systems for the prescribed framework.
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