The Securities and Exchange Board of India vide its notification dated 11th January 2021 has reviewed the scan range on volatility for option contracts in the commodity derivatives segment amid higher market volatility.
SEBI has advised Exchanges to fix and determine the volatility scan range (VSR) values as below:
“Exchanges shall fix prudent price scan range, volatility scan range, and/or plausible changes in any other parameters impacting options price. The exchange shall impose appropriate short option minimum margin, calendar spread charge and extreme loss margin for option contracts.
Sebi, in consultation with clearing corporations, has decided to prescribe minimum VSR values for commodities based on their volatility as high, medium and low.
For low volatility commodities, Sebi has prescribed a minimum VSR of 4 percent for non-agricultural goods and 5 percent for agricultural goods. This is 5 per cent and 6 per cent for non-agricultural goods and agricultural goods, respectively, in the medium category and for high volatility commodities category, the regulator has prescribed a minimum VSR of 6 per cent and 7 per cent for non-agricultural goods and agricultural goods, respectively.
Further, the Clearing corporations shall review the value of VSR by backtesting on a monthly basis using last three years’ data by 15th of every month and any change in VSR need to be implemented from the 1st trading day of the following month.
