SEBI Eases Norms For Settlement Guarantees In Commodity Derivatives

India’s market regulator has tweaked two important rules that affect how trades are settled and how mutual funds manage cash during the day.

The Securities and Exchange Board of India (SEBI) has eased norms around the Settlement Guarantee Fund (SGF) for commodity derivatives and introduced a new facility for mutual funds to handle short-term liquidity gaps.

The changes are meant to reduce friction in day-to-day operations while keeping basic safeguards in place. Here is a closer look at what has changed.

What Has Changed In SGF Rules?

SEBI has revised how clearing corporations calculate the size of the Core Settlement Guarantee Fund, which acts as a backup in case a trading member defaults.

Earlier, clearing corporations had to assume the simultaneous default of at least two clearing members and their associates that would create the highest credit exposure during stress tests. They also had to account for 50% of the credit exposure arising if all clearing members defaulted at the same time.

This second requirement has now been removed.

Under the new rules, clearing corporations only need to consider a scenario where at least three clearing members and their associates default at the same time, based on the highest possible exposure in stress conditions.

The regulator said the change comes after feedback from market participants, suggestions from the Risk Management Review Committee, and public consultation. In simple terms, the method has been made more direct. It removes an additional layer that many in the industry saw as heavy.

Does This Reduce Risk Or Just Costs?

On one side, the revised framework could lower the size of the settlement guarantee fund. That means clearing members may not need to lock in as much capital as before.

On the other hand, SEBI has increased the base assumption from two defaulting members to three. This keeps a level of stress in the system.

The fund itself is an important safety net. It ensures that trades are finalised even if a participant is unable to meet its obligations.

In addition, SEBI has introduced a new provision that allows it to ease the SGF requirements in specific situations. This is based on the current market dynamics, the effectiveness of existing risk management measures in place, and the continued protection of investors' interests.

The updated SGF rules are already in effect.

How Will Mutual Funds Use Intraday Borrowing?

In a separate circular, the Securities and Exchange Board of India (SEBI) has allowed mutual funds to borrow funds within the same day under certain conditions to manage timing gaps. This rule will apply from 1 April 2026.

According to the regulator, mutual funds, especially liquid and overnight schemes, can face timing gaps during the day. Redemption payouts may go out first, while cash from instruments like TREPS or reverse repo comes in later.

Instead of holding extra idle cash at all times, mutual funds can now borrow from banks or other financial institutions during the day to meet these payouts. The borrowing is only meant to cover temporary gaps. It is not a tool for long-term funding or leverage.

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Investor Takeaway

For investors, there is no direct change in returns, but the backend becomes smoother. Intraday borrowing can help funds handle redemptions without keeping too much idle cash, especially in liquid and overnight schemes.

On the SGF side, the rules have been simplified, which may reduce some pressure on market participants, while the basic safety buffer stays in place.

Overall, the intent looks clear. Ease operations where possible, without diluting risk controls. The real test will be how these rules play out in periods of market stress.

Sources:

Economic Times

NDTV Profit

Moneycontrol