SEBI Tightens Stress Testing Rules for Commodity Derivatives Core SGF Coverage

SEBI has issued a fresh circular on March 16, 2026 revising how clearing corporations must size and stress test the Core Settlement Guarantee Fund (Core SGF) for the commodity derivatives segment. The new framework alters the minimum default assumptions used for stress testing and adds a specific enabling clause allowing SEBI to grant targeted relaxations from SGF norms in appropriate cases.

This change modifies the regime earlier prescribed under the SEBI Master Circular dated August 04, 2023 for the commodity derivatives segment. Clearing corporations operating in this segment now need to recalibrate their risk models and stress testing frameworks to align with the updated expectations.

Background: Existing Core SGF Framework for Commodity Derivatives

The SEBI Master Circular SEBI/HO/MRD/MRD-PoD-1/P/CIR/2023/136 for the commodity derivatives segment, issued on August 04, 2023, lays down detailed requirements for risk management, including norms governing the Core SGF.

Under Annexure 0, paragraph 22, titled “Standardized Stress Testing for Commodity Derivatives”, the earlier approach for coverage of the Core SGF required clearing corporations to test the sufficiency of SGF resources under specified default scenarios.

Earlier Coverage Requirement Under Part C

Prior to the current amendment, the relevant provision under Part C. Coverage in paragraph 22 of Annexure 0 required clearing corporations to:

  • Compute credit exposure for each stress test scenario in Part A by considering:
    • A. The credit exposure arising from the simultaneous default of at least 2 clearing members (and their associates) causing the highest credit exposure; and
    • B. 50% of the credit exposure triggered by the simultaneous default of all clearing members.

In effect, the Core SGF coverage was assessed using a combination of a “top-two-defaulting-members” exposure requirement plus an additional buffer linked to half the exposure from a hypothetical full-system default.

Rationale for Policy Revision

SEBI revisited this framework in light of:

  • Representations made by various market stakeholders,
  • Recommendations from the Risk Management Review Committee (RMRC), and
  • Feedback received during a structured public consultation process.

The regulator’s goal is explicitly linked to facilitating Ease of Doing Business, while also enhancing the robustness of risk management in the commodity derivatives space. After evaluating the comments and expert inputs, SEBI decided to refocus the coverage test on a more concentrated default scenario involving a higher minimum number of clearing members, while simultaneously simplifying the formula by removing the earlier “50% of all-member default exposure” leg.

Key Change: Revised Stress Testing Coverage for Core SGF

The central modification relates to Part C (Coverage) of paragraph 22 of Annexure 0 in the Master Circular for the commodity derivatives segment.

New Coverage Formula Under Part C

The earlier two-pronged approach is now replaced with a single, more stringent requirement:

“Part C. Coverage
For each of the scenarios in Part A, Clearing Corporations shall calculate the credit exposure due to simultaneous default of at least 3 clearing members (and their associates) causing highest credit exposure.”

Practical Implications of the Revised Default Assumption

Under the revised regime:

  • Clearing corporations must assume at least three simultaneous defaults, rather than two.
  • The defaults considered must be those of clearing members (and their associates) that together create the maximum credit exposure under each stress scenario prescribed in Part A.
  • The 50% exposure from simultaneous default of all clearing members is no longer referenced in the amended text of Part C for commodity derivatives SGF coverage.