Sebi to introduce pre-expiry margins to curb negative price scenarios

Seeking to strengthen the risk management framework, Sebi will put in place pre-expiry margins on cash settled contracts wherein the underlying commodities are deemed to be susceptible to possible near zero or negative prices. The latest decision — to be effective from April 1, 2021 — is aimed at encouraging significant reduction of open interest as the contract approaches the expiry date.

The pre-expiry margin will be applicable on certain commodities under the Alternate Risk Management Framework (ARMF). Against the backdrop of the unprecedented event of negative final settlement price in the crude oil futures markets last year, Sebi had prescribed an ARMF that would be applicable in case of near zero and/ or negative prices for any underlying commodities/futures.