28th July 1999
Executive Directors/ Managing Directors/Presidents of all Stock Exchanges
SUB : Risk Containment Measures for the Index Futures Market
SEBI, while accepting the recommendations of Dr L C Gupta Committee, had appointed a group under Prof. J R Varma to recommend measures for risk containment for derivatives market in India. The Group focused on ways of making operational the broad recommendations of the Dr. L.C. Gupta Committee to maintain the initial margin to cover 99% Value at Risk. The report provides the methodology for determining initial margin to be charged on Index Futures contracts, prescribes liquid networth, exposure limits for clearing members, transparency and disclosure norms for the clearing corporation and position limits etc. A copy of the Prof. J R Varma Group report is enclosed.
The Board in its meeting held on 19th March 1999 accepted the report of the Prof. J R Varma Group and approved the risk containment measures for the stock index futures market recommended by the Group. The risk containment measures for other derivatives contracts would be prescribed from time to time. The following risk containment measures would have to be complied with and implemented by the derivatives exchange / derivatives segment of an exchange and the clearing corporation / clearing house of an exchange for the index futures trading and settlement :
RISK CONTAINMENT MEASURES FOR THE INDEX FUTURES MARKET