CPMI-IOSCO

Clearing corporations do not each invent their own risk rules from scratch. Two international bodies set common rules for how the world's financial infrastructure should manage risk.

SEBI requires India's clearing corporations to follow these rules too. Together, the two bodies are known as CPMI-IOSCO.

One body focuses on payment systems. The other focuses on securities regulation. Between them, they set the standard behind how Indian commodity index futures and options get margined.

CPMI stands for the Committee on Payments and Market Infrastructures; IOSCO stands for the International Organization of Securities Commissions. Together they set the Principles for Financial Market Infrastructures (PFMI) — international standards for risk management and control, product design and the sound functioning of securities markets.

SEBI requires that the risk management framework for Indian index futures and index options conform to these principles. In practice this shows up as two concrete margin requirements: initial margin based on a 99% confidence Value at Risk (VaR), calculated over a Margin Period of Risk (MPOR) of at least 2 days. MPOR is the number of days over which settlement risk must be covered by collected margin — comparable to the trade-to-pay-in/pay-out period in cash markets — and can be extended during periods of market stress.

MCX iCOMDEX Bullion Index futures carry an initial margin sized to cover 99% of the maximum two-day price move seen historically, rather than a flat percentage chosen arbitrarily by the exchange. If the index's historical daily volatility implies a two-day 99% VaR of, say, 6% of contract value, the clearing corporation sets the initial margin at around that level.

During a period of unusually sharp price swings — say a geopolitical shock that spikes gold and silver volatility — the clearing corporation can lengthen the MPOR beyond two days and recompute the VaR over the longer window, raising the initial margin collected, precisely because CPMI-IOSCO principles require the risk cover to track actual market risk rather than stay fixed.

Chapter 2, section 2.4 (Trading in Index Futures), introduces CPMI-IOSCO alongside the definitions of MPOR and VaR, in the context of margining for index derivatives; Chapter 7 repeats the same requirement for commodity index options. Expect the full expansion of the acronym and the 99% VaR / minimum 2-day MPOR figures as direct recall.

• CPMI-IOSCO is two bodies, not one. Candidates often expand only "IOSCO" and forget "CPMI" is the Committee on Payments and Market Infrastructures.
• MPOR is a minimum, not a fixed number. Two days is the floor; it can be extended in periods of uncertainty.
• 99% VaR is the confidence level for initial margin on index derivatives, not a general statement about all commodity margins — other margin types (special, concentration, additional) sit on top of this base.