NSE Clearing has developed a comprehensive risk containment mechanism for the Futures & Options 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 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 NSE Clearing. ABC can be provided by the members in the form of Cash, Bank Guarantee, Fixed Deposit Receipts and approved securities.
Additional Base Capital
Clearing members may provide additional margin/collateral deposit (additional base capital) to NSE Clearing and/or may wish to retain deposits and/or such amounts which are receivable from NSE Clearing, over and above their minimum deposit requirements, towards initial margin and/ or other obligations.
Clearing members may submit such deposits in any one form or combination of the following forms:
- Fixed Deposit Receipts (FDRs) issued by approved banks and deposited with approved Custodians or NSE Clearing
- Bank Guarantee in favour of NSE Clearing from approved banks in the specified format.
- Approved securities in demat form deposited with approved Custodians.
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.
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.
All collateral deposits made by CMs are segregated into cash component and non-cash component.
For Additional Base Capital, cash component means cash, bank guarantee, fixed deposit receipts, T-bills and dated government securities. Non-cash component shall mean all other forms of collateral deposits like deposit of approved demat securities.
At least 50% of the Effective Deposits should be in the form of cash.
Liquid Networth is computed by reducing the initial margin payable at any point in time from the effective deposits.
The Liquid Networth maintained by CMs at any point in time should not be less than Rs.50 lakhs (referred to as Minimum Liquid Net Worth).
Assignment margin is released to the CMs for exercise settlement pay-in.
Initial Margin requirement = Total SPAN Margin Requirement + Buy Premium + Assignment Margin
The exposure margins for options and futures contracts on index are as follows:
- 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.
- 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.
The benefit of calendar spread in exposure margin is not provided for option contracts as exposure is made applicable only for short positions. As no exposure margin is levied on long positions there cannot be any offset provided.
The following margin reports (in detail) are downloaded to members on a daily basis:
This report gives the margin summary for a Clearing Member for the trade date across all trading members/ custodial participants, clearing through him. The report gives a break up of Initial Margin and Premium Margin.
This report gives the margin summary for a Trading Member for the trade date across all his clients. The report gives a break up of Initial Margin and Premium Margin.
This report gives the following details for a Clearing Member (i) the break up of total deposits, (ii) total margin payable for the day, and (iii) the margin amount payable by the member to NSE Clearing or the excess amount lying with NSE Clearing (the amount to be paid to NSE Clearing will be a positive number. The excess amount with NSE Clearing is given in brackets).
This file provides details of margins payable by trading members who clear and settle through the CM. The file format is : Date, Trading Member Code/CP Code, SPAN margin, Net Buy Premium, Total Margin and Exposure Margin.
This file provides details of margin payable by the clients who have traded through the TM. The file format is : Date, Client Code, SPAN Margin, Net Buy Premium, Total Margin and Exposure Margin
Additional provisional margin report is downloaded to members. This file provides details of margins payable by trading members who clear and settle through the CM. The file format is : Date, Trading Member Code/CP Code, SPAN margin, Net Buy Premium, Total Margin and Exposure Margin.
Additional provisional margin report is downloaded to members. This file provides details of margin payable by the clients who have traded through the TM. The file format is : Date, Client Code, SPAN Margin, Net Buy Premium, Total Margin and Exposure Margin.
This file provides details of cross margin benefit at trading member/CP code level. The file format is: Trading Member Code/ CP code, Initial Margin Benefit and Exposure Margin Benefit.
This file provides details of cross margin benefit at client level. The file format is: TM Code, Client code, Initial Margin Benefit and Exposure Margin Benefit
At the trading member level, this file provides details of net positions for each contract and the position quantity considered for the purpose of offset. The file format is: Client code, contract description, net positions and offset positions.
At the clearing member level, this file provides details of net positions for each contract and the position quantity considered for the purpose of offset. The file format is: Trading member/CP code, client code, contract description, net positions and offset positions.