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SEBI Proposes Lower Z-Score for Commodity Derivatives SGF

6 February 20261 min read
BANKING & FINANCESEBI ProposesLower Z-Score forCommodityDerivatives SGF6 February 2026safalsetu.com

Why in the news

After feedback that safeguards were too cautious and locked up capital, SEBI floated easier risk rules for commodity derivatives, centred on the Settlement Guarantee Fund (SGF).

Key facts

  • Current stress test: 15 years of price history; extreme moves capped at Z-score 10.
  • Proposal: lower the threshold to Z-score 5.
  • SEBI’s reasoning: a Z-score of 10 captures very rare events and may overstate risk.

Key terms

  • Z-score: distance of a price move from its historical average, in standard deviations; higher means rarer.
  • SGF: a safety net run by clearing corporations to guarantee trade completion if participants default.
  • SEBI regulates SGF in securities and commodity derivatives; exchanges’ clearing corporations (for example NSE, BSE) manage it.

Exam angle

  • Regulator: SEBI; document: consultation paper.
  • Change: Z-score 10 to 5.
  • Related terms: clearing corporation, member default.

Test yourself

1. SEBI's consultation paper on commodity derivatives proposes reducing the Z-score threshold from 10 to what value?

The proposal is to cut the threshold from 10 to 5.

2. What is the main purpose of the Settlement Guarantee Fund maintained by clearing corporations?

SGF is a safety net that guarantees completion of trades if participants default.

3. How many years of historical price data does the current SGF stress-testing framework use?

The existing framework relies on 15 years of historical price data.

This topic is part of Daily Current Affairs 5 & 6 February 2026 (28 topics).

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