NSE Clearing has developed a comprehensive risk containment mechanism for the Currency derivatives segment. The most critical component of a risk containment mechanism for NSE Clearing is the online position monitoring and margining system. The actual margining and position monitoring is done on-line, on an intra-day basis. NSE Clearing uses the SPAN' (Standard Portfolio Analysis of Risk) system for the purpose of margining, which is a portfolio based system.
NSE Clearing collects initial margin up-front for all the open positions of a CM based on the margins computed by NSE Clearing-SPAN'. A CM is in turn required to collect the initial margin from the TMs and his respective clients. Similarly, a TM is required to collect upfront margins from his clients.
Initial margin requirements are based on 99% value at risk over a one day time horizon. However, in the case of futures contracts, where it may not be possible to collect mark to market settlement value, before the commencement of trading on the next day, the initial margin is computed over a two-day time horizon, applying the appropriate statistical formula. The methodology for computation of Value at Risk percentage is as per the recommendations of SEBI from time to time.
Initial margin requirement for a member:
- For client positions - is netted at the level of individual client and grossed across all clients, at the Trading/ Clearing Member level, without any setoffs between clients.
- For proprietary positions - is netted at Trading/ Clearing Member level without any setoffs between client and proprietary positions.
For the purpose of SPAN Margin, various parameters are specified from time to time.
IIn case a trading member wishes to take additional trading positions his CM is required to provide Margin deposit to NSE Clearing. MD can be provided by the members in the form of Cash, Bank Guarantee, Fixed Deposit Receipts and approved securities & Government securities.
Extreme loss margin:
Clearing members are subject to extreme loss margins in addition to initial margins. The applicable extreme loss margin on the mark to market value of the gross open positions is as follows or as may be specified by the relevant authority from time to time
In case of options extreme loss margin shall be calculated on the Notional Value of the open short option position. Notional Value for this purpose shall be calculated on the basis of the latest available Reserve Bank Reference Rate for FCY-INR pairs.
The extreme loss margins for cross currency derivatives shall be collected in INR. For this purpose, RBI reference rate of previous day for USD-INR and the corresponding exchange rate published by RBI for JPY-INR, as applicable, shall be used till 02:00 p.m. The latest available RBI reference rate for USD-INR and the corresponding exchange rate published by RBI for JPY-INR, as applicable, shall be used post 02:00 p.m.
In case of calendar spread positions in futures contract, ELM is levied on one third of the value of open position of the far month futures contract. The calendar spread position is granted calendar spread treatment till the expiry of the near month contract.
The benefit of calendar spread in exposure margin is not provided for option contracts as ELM is made applicable only for short positions. As no ELM is levied on long positions there cannot be any offset provided.
|Product||ELM: Futures||ELM: Short Options|
Margin on consolidated crystallized obligation
The margin on consolidated crystallized obligation in derivatives represents:
On intraday basis
Payable crystallized obligations based on the closed-out futures positions and payable/receivable premium at client level
Payable obligations at client level considering all futures and options positions
- Intraday basis
On intraday basis, the net payable/receivable amount at client level is:
- Premium payable/receivable
- Futures crystallized profit or loss (calculated based on weighted average prices of trades executed).
If the overall amount at client level is payable, such amount is the intraday consolidated crystallized obligation margin for the client.
- End-of-day basis
At the end of day, the payable/receivable amount at client level shall be calculated using:
- Futures mark to market profit/loss to be settled
- Options premium payable/receivable
- Options exercise/assignment for expired contracts
- Futures final settlement for expired contracts
If the overall amount at client level is payable, such amount is the end-of-day consolidated crystallized obligation margin for the client. The margin on consolidated crystallized obligations shall be released on completion of settlement.
The following margin reports are downloaded to members on a daily basis:
- Margin Statement of Clearing Members : MG-09
- Margin Statement of Trading Member/ Custodial Participant : MG-10
- Margin Payable Statement of Clearing Member : MG-11
- Detail Margin File of Clearing Members : MG - 12
- Client Level Margin File of Trading Members : MG-13
- Detailed Intraday provisional margin report for clearing member MG-12
- Client Level Intraday provisional Margin File of Trading Members: MG-13
- Details of collaterals submitted by clearing member (CL01)