“In recent times, extreme volatility has been observed in commodity prices globally, particularly in the case of crude oil, wherein the prices had unprecedentedly gone down to zero and subsequently, even negative. In such a scenario, margins equivalent to even 100 per cent of the futures price would not have been sufficient to cover the steep upward or downward price variations in the futures market, ” Sebi said in a circular.
In April, crude oil prices had fallen below zero for the first time in history. The demand for oil crashed because of lockdown across the globe.
The regulator said to handle such a scenario of ‘near zero’ and negative prices, it had formed a panel to review the risk management framework.
Sebi said commodities that need specialised storage space in physical markets, which, if not followed, may cause environmental hazards or have other external implications and commodities that can’t be disposed of or destroyed with ease as it might cause an environmental hazard or incur significant cost, would be in principle treated as susceptible to the possibility of near zero and negative prices.
The regulator said clearing corporations should ensure their systems are ready to implement the new framework within 60 days.