The Securities and Exchange Board of India (SEBI) on August 12, 2026, issued circular on Review of Inclusion of Historical Scenarios in Stress Testing for Commodity Derivatives Segment.
This SEBI circular amends the stress testing methodology used for the Core Settlement Guarantee Fund (Core SGF) in the commodity derivatives segment, specifically revising the Z-score threshold applied under the "Peak Historical Return" scenario in the standardized stress testing framework.
Under the earlier provision (paragraph 22, Annexure O of the August 4, 2023 Master Circular), extreme price movements — measured over the Margin Period of Risk (MPOR) across a 15-year historical window — that exceeded a Z-score of 10 were capped and replaced by the price movement corresponding to that Z-score of 10, for both the maximum rise (Scenario 1A) and maximum fall (Scenario 1B) scenarios.
Following stakeholder representations, a recommendation from the Risk Management Review Committee (RMRC), and public comments, SEBI has now lowered this threshold from a Z-score of 10 to a Z-score of 5. This means extreme historical price movements beyond the Z-score of 5 threshold will now be capped/replaced at that lower level, effectively making the stress testing more conservative by capping outlier price movements sooner. The method for calculating the Z-score itself remains unchanged — using the mean and standard deviation (sigma) of returns over the applicable MPOR period across the 15-year history.
The change is explicitly framed as an "Ease of Doing Business" measure and takes effect immediately, issued under SEBI's statutory powers under Section 11(1) of the SEBI Act, 1992, and Regulation 51 of the SECC Regulations, 2018, to protect investor interests and regulate securities markets.
[Circular No. HO/47/16/14(1)2026-MRD-POD1/I/18580/2026]
