MCCIL follows a stringent risk management system for all commodity contracts traded at ICEX. The Clearing members have to deposit liquid assets with the MCCIL to cover various margins and deposit requirements. Initial margins, ELM or any other margins as may be specified by SEBI from time to time gets deducted from the liquid assets of a clearing member on an online, real time basis. The following types of margins are applicable:
Initial Margin:Initial margin requirements are based on 99% value at risk (VaR) over the margin period of risk (MPOR). In order to achieve this, EWMA volatility (Standard Deviation) is scaled up by a factor of 3.5. The minimum value of initial margin is subject to the commodity specific floor value as may be specified by SEBI from time to time.
MCCIL estimates the appropriate MPOR for each product based on liquidity in the product subject to a minimum of two days MPOR. The VaR calculated shall be scaled up in accordance with the estimated MPOR.
VaR is calculated based on the market prices of the futures contracts and updated at before beginning of the trading, 9:30 a.m., 11:00 a.m., 1:00 p.m., 3:00 p.m., 5:00 p.m., 7:00 p.m., 8:30 p.m., 10:30 p.m. and after end of the trading.
Extreme Loss Margin (ELM): Margins to cover the loss in situations that lie outside the coverage of the VaR based initial margins. ELM of 1% gets levied on gross open positions.
Additional Margin: The margin over and above the other margins, which may get levied on both sides (long and short) based on the evaluation of specific situations as may be necessary.
Tender Period Margin: The margin is imposed during the tender period of a contract. The margin gets increased gradually every day beginning from the pre-determined number of days before the expiry of the contract as applicable.
Delivery Period Margin: Appropriate delivery period margin gets levied on the long and short positions marked for delivery till the pay-in is completed by the member. Once delivery period margin is levied, all other applicable margins may be released.
Concentration Margin: Margins to cover the risk of longer period, required for liquidation of concentrated positions in any commodity derivatives contract.
Margin provisions for intra-day crystallized losses: To mitigate the risk arising out of accumulation of crystallized obligations incurred on account of intra-day squaring off of positions, the intra-day crystallized losses are monitored and blocked by Clearing Corporations from the free collateral on a real-time basis. If crystallized losses exceed the free collateral of a clearing member available with the Clearing Corporation, the member gets placed into the risk reduction mode.
Spread Margin benefit: Spread benefit in initial margin is permitted in the following cases:
- Different expiry date contracts of the same underlying.
- Two contracts variants having the same underlying commodity.
In case of spread positions, additional and special margins are not levied, if any. No benefit in ELM is provided for spread positions i.e. ELM is charged on both individual legs. Margin benefit on spread positions is entirely withdrawn latest by the start of tender period or on the expiry day, whichever is earlier.