Sebi may rejig margin rules to counter new-age risks

India’s market regulator is evaluating a broad revamp of the country’s margin framework for both cash equities and derivatives trading as it looks to align risk management systems with today’s market structure, according to three people aware of the development.

- Apoorva Ajith

The review is being discussed by the Risk Management Review Committee (RMRC) of the Securities and Exchange Board of India (Sebi), said these people on the condition of anonymity. The committee is examining whether the current framework, built largely around the Standard Portfolio Analysis of Risk (SPAN) model introduced more than two decades ago, remains sufficient for modern market risks. SPAN is a risk-based margining system used by exchanges to calculate how much collateral or margin a trader must keep.

The discussions are preliminary and the committee is far from reaching a decision, the people said.

“RMRC is discussing how to reduce the dependence on the age-old classical SPAN model and make the overall margin framework more suitable for today’s market risks.

There are several new risks such as cyber-security, artificial intelligence and algorithmic trading along with high volumes,” the first of the officials cited earlier said.

They added that certain components of the SPAN margin and other adjoining margin systems are likely to change.

Queries emailed to Sebi remained unanswered.