The Securities and Exchange Board of India (SEBI) on February 05, 2026, issued Consultation Paper on Draft Circular On Review Of Inclusion Of Historical Scenarios In Stress Testing And Coverage Of Settlement Guarantee Fund For Commodity Derivatives Segment.
SEBI has received representations to review the following:
• Z-Score: To reduce the applicable Z-Score from 10 to 5 for considering historical returns during standardised stress testing for commodity derivatives. It was represented that a Z-score of 5 may provide a robust buffer against severe market shocks, effectively covering “extreme but plausible” scenarios that have historically been observed or could credibly occur and the reduction of Z-score would impact only in case of historical scenarios for stress testing.
• Coverage of SGF: To remove the requirement of 50% credit exposure due to default of all Clearing Members (CMs) and define the coverage of SGF as Top 2 / Top 3 CMs. It was represented that in the Equity Derivatives Segment, for the purpose of applicability of a cover-n standard, the CCs offering clearing and settlement services in the equity derivatives segment are segregated into 2 categories:
o Category A - CC having equal to or more than 40% of the share of clearing volumes, in which case the credit exposure shall be calculated by considering simultaneous default of at least 3 CMs (and associates) causing the highest credit exposure, OR INR 10,500 crores, whichever is higher
o Category B - CC having less than 40% of the share of clearing volumes, credit exposure shall be calculated by considering a simultaneous default of at least 2 CMs (and associates) causing the highest credit exposure.
Further, as per PFMI Principle 4, a Central Counterparty (“CCP”) that is involved in activities with a more complex risk profile or that is systemically important in multiple jurisdictions is expected to, at least, meet the Cover 2 requirement. All other CCPs should at least meet the Cover 1 requirement.
The issue relating to the calculation of coverage of the Settlement Guarantee Fund (SGF) was examined by the Working Group (WG) on the Review of current regulatory norms applicable to the Agricultural Commodity Derivatives Segment. After deliberations, the WG recommended that the requirement of maintaining 50% credit exposure due to the default of all Clearing Members (CMs) may be dispensed with. Instead, it proposed that credit exposure should be calculated by considering the simultaneous default of at least three CMs (along with their associates) that results in the highest credit exposure.
These recommendations were placed before the Risk Management Review Committee (RMRC) of SEBI, which, after due deliberation, agreed with the WG’s proposals. In addition, the RMRC also examined the proposal concerning the Z-Score and recommended a reduction in the Z-Score threshold from 10 to 5.
Based on the above, a draft circular has been prepared to amend the relevant provisions under paragraph 22 of Annexure O of the SEBI Master Circular dated August 04, 2023. The proposed amendments relate to Part A (Z-Score) and Part C (Coverage of SGF), in line with the recommendations approved by the RMRC.
Comments are invited on the draft circular on “Review of Inclusion of Historical Scenarios in Stress Testing and Coverage of Settlement Guarantee Fund for Commodity Derivatives Segment”, placed at Annexure A. The comments/ suggestions should be submitted latest by February 26, 2026, through the online web-based form which can be accessed using the following link: https://www.sebi.gov.in/sebiweb/publiccommentv2/PublicCommentAction.do?doPublicComm
