Sebi tweaks framework for calendar spread margin in commodity futures contracts

New Delhi: Markets regulator Sebi on Monday tweaked the framework pertaining to margin benefits on “calendar spread” position in commodity futures contracts in a bid to increase liquidity in such contracts. In market parlance, calendar spread is a trading strategy which involves the buying of a derivative of an asset in one month and selling the derivative in another month. It is mostly done in the case of futures contracts in commodity markets.

At present, the calendar spread margin benefit is applicable for the first three expiries only.

Now, the regulator has decided to extend this benefit beyond the first three expiries, the Securities and Exchange Board of India (Sebi) said in a circular.

“In case of calendar spreads or spreads consisting of two contract variants having the same underlying commodity (wherein currently 75 per cent benefit in initial margin is permitted), benefit in initial margin shall be permitted when each individual contract in the spread is from amongst the first six expiring contracts,” it added.

The move is expected to increase liquidity in far month contracts, facilitate hedging by value chain participants and reduce cost of trading, Sebi said.

The decision comes after market participants requested for an extension of the benefit beyond the first three expiries.