Under the revised framework, price movements corresponding to a Z-score of 5 will replace extreme price movements beyond that threshold when calculating peak historical returns for commodities. The change takes immediate effect.
The move modifies the existing provisions under the Core Settlement Guarantee Fund (SGF) framework for commodity derivatives.
What has changed?
SEBI’s existing framework requires clearing corporations to conduct standardised stress tests using historical scenarios. For peak historical returns, the framework considers the maximum percentage rise and fall in the price of each underlying over the applicable Margin Period of Risk (MPOR) during the previous 15 years.
Earlier, price movements corresponding to a Z-score of 10 replaced extreme price movements beyond that level. SEBI has now reduced this threshold to 5.
The mean and standard deviation of returns over the applicable MPOR across the 15-year period will continue to be used to calculate the Z-score.
Why has SEBI made the change?
SEBI said it received representations from stakeholders seeking a review of the existing Z-score provision. The regulator said the decision followed recommendations from its Risk Management Review Committee (RMRC) and consideration of public comments.
The change has been made with the stated objective of facilitating Ease of Doing Business, while modifying the methodology used by clearing corporations for stress testing.
What does the framework cover?
Stress testing forms part of the risk-management framework for clearing corporations and is linked to the adequacy of the Core Settlement Guarantee Fund. Historical scenarios are used to assess the potential impact of sharp price movements on positions and the resources available to meet obligations.
The revised provision does not change the 15-year historical period or the use of the applicable MPOR for measuring price movements. The key change is the Z-score threshold, which has been reduced from 10 to 5.
The revised provisions are effective immediately, according to SEBI’s August 12 circular.
First Published: Aug 13, 2026 8:03 AM IST
