NSCCL has developed a comprehensive risk containment mechanism for the Futures & Options segment. The most critical component of a risk containment mechanism for NSCCL is the online position monitoring and margining system. The actual margining and position monitoring is done on-line, on an intra-day basis. NSCCL uses the SPAN^® (Standard Portfolio Analysis of Risk) system for the purpose of margining, which is a portfolio based system.

Initial Margin

a. Span Margin

NSCCL collects initial margin up-front for all the open positions of a CM based on the margins computed by NSCCL-SPAN^®. A CM is in turn required to collect the initial margin from the TMs and his respective clients. Similarly, a TM should 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 (on index or individual securities), 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.

In case a trading member wishes to take additional trading positions his CM is required to provide Additional Base Capital (ABC) to NSCCL. ABC can be provided by the members in the form of Cash, Bank Guarantee, Fixed Deposit Receipts and approved securities.


b. Premium Margin

In addition to Span Margin, Premium Margin is charged to members. The premium margin is the client wise premium amount payable by the buyer of the option and is levied till the completion of pay-in towards the premium settlement.


c. Assignment Margin

Assignment Margin is levied on a CM in addition to SPAN margin and Premium Margin. It is levied on assigned positions of CMs towards interim and final exercise settlement obligations for option contracts on index and individual securities till the pay-in towards exercise settlement is complete.

The Assignment Margin is the net exercise settlement value payable by a Clearing Member towards interim and final exercise settlement and is deducted from the effective deposits of the Clearing Member available towards margins.

Assignment margin is released to the CMs for exercise settlement pay-in.

Initial Margin requirement = Total SPAN Margin Requirement + Buy Premium + Assignment Margin


Exposure Margin

The exposure margins for options and futures contracts on index are as follows:

i. For Index options and Index futures contracts:
3% of the notional value of a futures contract. In case of options it is charged only on short positions and is 3% of the notional value of open positions.

ii. For option contracts and Futures Contract on individual Securities:
The higher of 5% or 1.5 standard deviation of the notional value of gross open position in futures on individual securities and gross short open positions in options on individual securities in a particular underlying. The standard deviation of daily logarithmic returns of prices in the underlying stock in the cash market in the last six months is computed on a rolling and monthly basis at the end of each month.
For this purpose notional value means :
- For a futures contract – the contract value at last traded price/ closing price.
- For an options contract – the value of an equivalent number of shares as conveyed by the options contract, in the underlying market, based on the last available closing price.

In case of calendar spread positions in futures contract, exposure margins are 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. .

Margin Reports
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
• Cross margin benefit report for clearing member: MG – 14
• Cross margin benefit report for trading member: MG – 15
• Offset positions report for trading member (XM_01)
• Offset positions report for clearing member (XM_02)
  Details of Margin Reports

Payment of Margins