SEBI lowers commodity stress test Z-score

The India — Securities and Exchange Board of India (SEBI) has reduced the Z-score threshold used in the standardised stress-testing framework for commodity derivatives from 10 to 5. The change, effective immediately, applies to the Core Settlement Guarantee Fund (Core SGF) and affects how clearing corporations calculate peak historical returns. Under the revised framework, price movements corresponding to a Z-score of 5 will replace extreme price movements beyond that threshold, using the mean and sigma of returns over the applicable Margin Period of Risk (MPOR) across 15 years. SEBI stated the modification aims to facilitate Ease of Doing Business, following stakeholder representations and recommendations from its Risk Management Review Committee. The move is expected to lower capital requirements for high-volatility commodities, potentially freeing up funds for trading activities while maintaining substantial risk coverage, as a Z-score of 5 covers more than 99.9999% of usual market conditions.