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Under the existing framework, price movements corresponding to a Z-score of 10 replace extreme price movements beyond that threshold in peak historical returns of all commodities.
The Securities and Exchange Board of India (Sebi) has now revised the provision to a Z-score of 5, according to its circular.
The regulator said, “Price movements corresponding to a Z-score of 5 will replace extreme price movements beyond that threshold in peak historical returns of all commodities. Mean and sigma of returns over the applicable MPOR period across 15 years would be used for calculation of the Z-score.”
The change applies to the standardised stress testing framework prescribed under the Core Settlement Guarantee Fund (Core SGF) for commodity derivatives.
The earlier provision stated, “Price movements corresponding to a Z-score of 10 will replace extreme price movements beyond that threshold in peak historical returns of all commodities.”
Sebi said the modification has been made “with the objective of facilitating Ease of Doing Business“.The revised circular comes into force with immediate effect.
The move relates to the historical scenarios used for peak historical return stress testing, under which the maximum percentage rise and fall in the price of each underlying over the Margin Period of Risk (MPOR) during the last 15 years are considered.
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https://economictimes.indiatimes.com/markets/commodities/news/sebi-lowers-stress-testing-limit-for-commodity-derivatives/articleshow/133185205.cms
