Commencement of Cross Margin – Commodity future trade in India

A new introduction has been made by the commodity manager of India’s Security and Exchange Board (SEBI). They decided to induct cross margin, a new system for the commodity futures trade.

SEBI has put in numerous efforts to improve its working ethics globally. This cross-margin system will significantly benefit the trade market of India. The cross margin permits the market traders to reduce the total margin payment. In case they are taking two mutually offsetting positions. This strategic move by the producers will help the potential holders to transfer surplus margin to other accounts.

The other margins pertaining to market-wise discrepancies and extreme loss margin will also be imposed. The process flow for the newly introduced system is explained in detail by the producers.

The facility of two accounts will be given to the customers. The accounts can be under either head, trading, or clearing numbers. This will create a bilateral account and assist customers. The assistance will be changing from a moderately replicated portfolio to a fully replicated portfolio.

Exchange companies can introduce cross margin incentives after verifying the sufficiency to recover the market losses for the minimum period of six months. In the case of trading members and clearing corporations, an option will be given to hold the positions. In the cross-margin account till it wipes off. All this information was given by the regulators in a news recording.

This is a very good opportunity for all the companies and corporations. Who is looking forward to commodity trade being in safe hands? There are certain prerequisites to be fulfilled to get inducted into this process. An agreement between both parties is a mandatory requisite. This trade agreement must be with the trading company and the customer. The agreement shall comply will all the duly required specifications. Which may amount to the distribution of liability and responsibility in the event of a default.

Various clearing corporations are functional in India. To get started with the newly introduced policy approval is required by the SEBI. In a specified manner, all the clearing corporations must apply for approval from SEBI. The required application must be accompanied by the backtesting data.

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