Initial margin shall be computed on an online real time basis, payable on all open positions of Clearing Members, up to client level, and shall be payable upfront by Clearing Members in accordance with the margin computation methodology adopted by MCCIL from time to time. Initial Margin shall include SPAN margins, premium margin, assignment margin and such other additional margins, that may be specified by the Clearing Corporation from time to time.
Clearing Corporation shall adopt SPAN® (Standard Portfolio Analysis of Risk) system or any other system for the purpose of real time initial margin computation. Initial margin requirements shall be 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, before the commencement of trading on the next day, the initial margin shall be scaled up by appropriate scale up factor. The methodology for computation of value at risk percentage shall be as per the recommendations of SEBI from time to time.
Positions shall be computed in the following manner for Initial margin requirement:
The margins so computed shall be aggregated first at the trading member level and then aggregated at the clearing member level.
The parameters for computation of span margin shall be updated as specified by SEBI and/or MCCIL from time to time. To start with, the parameters shall be updated 5 times in the day during trading, based on the prices at 11:00 a.m., 12:30 p.m., 2:00 p.m., 3:30 p.m., end of the trading and beginning of the trading. Risk parameters generated based on the updated parameters shall be provided on the website at www.MSEI.in
Stock Products:
The Price Scan Range shall be taken as three and a half standard deviations (3.5*sigma) as calculated for VaR purpose for the relevant underlying security in the relevant underlying segment of the Exchange, or such other price scan range as may be specified by the MCCIL from time to time. The price scan range for futures and option on individual securities would also be linked to liquidity. The same shall be measured in terms of impact cost for an order size of Rs 5 lakh calculated on the basis of order book snapshots in the previous six months. The mean impact cost as stipulated by SEBI shall be calculated on 15th of each month on a rolling basis considering the order book snap shots of previous six months. Accordingly, if the mean value of the impact cost exceeds 1%, the price scanning range would be scaled up by square root of three. This would be in addition to the requirement of increasing the price scan range on account of look ahead period as may be applicable. If the mean impact cost of a security moves from less than or equal to 1% to more than 1%, the price scan range in such underlying shall be scaled by square root of three and scaling shall be dropped when the impact cost drops to 1% or less.
Such changes shall be applicable on all existing open positions from the third working day from the 15th of each month. The details of impact cost for underlying on which derivative contracts are available and the methodology of computation of the same shall be available on the Exchange website at www.MSEI.in The mean impact cost as computed above or such other impact cost as specified by SEBI or relevant authority of MCCIL shall be used for the purpose of identification of securities for scaling up of PSR. The minimum margin percentage on stock futures shall be 7.5% which shall be scaled up according to the look-ahead period as may be specified by the Clearing Corporation from time to time.
Stock products:
Volatility Scan Range for stock products shall be taken at 10% or such other percentage as may be specified by SEBI/MCCIL from time to time.
In the case of futures and options contracts on individual securities, the margin on calendar spread positions shall be calculated on the basis of delta of the portfolio consisting of futures and options contracts in each month. A calendar spread position shall be granted calendar spread treatment till the expiry of the near month contract The calendar-spread margin shall be charged in addition to worst-scenario loss of the portfolio. The spread charge shall be 0.5% per month of spread on the far month contract subject to a minimum margin of 1% and a maximum margin of 3% on the far side of the spread with legs up to 1 year apart.
Short option minimum charge shall be equal to 7.5 % of the notional value of all short positions in options on individual stocks. Notional value, with respect to an option contract, shall be computed as the product of the short open position in that option contract multiplied by the previous day's closing price of the underlying security in the normal market of Capital Market Segment of the Exchange, or such other price as may be specified by the Clearing Corporation from time to time.
The Net Option Value shall be the current market value of the option times the number of options (positive for long options and negative for short options) in the portfolio. Net option value will be deducted from the SPAN® Risk Amount.
Clearing members shall be subject to Exposure/Extreme Loss margins in addition to initial margins.
For this purpose, the standard deviation of daily logarithmic returns of prices of the underlying security in the normal market of Capital Market segment of the Exchange in the last six months shall be computed on a rolling and monthly basis at the end of each month. The applicable exposure margins shall be intimated by the Clearing Corporation from time to time.
As a risk containment measure, the relevant authority may require clearing members to make payment of additional margins as may be decided from time to time. This shall be in addition to the initial margin and exposure margin.
Clearing members shall deposit liquid assets as mentioned in Chapter VI to meet margin requirements. The margins shall be collected /adjusted from the liquid assets of a member on a real time basis.
The initial and exposure margin shall be payable upfront by the clearing members. Members are required to collect initial margins from their client/constituents on an upfront basis. It is mandatory for all clearing /trading members to report details of such margins collected to the Clearing Corporation. Amount of liquid net worth of a clearing member utilized towards exposure margins arising out of open positions of trading members/clients, clearing and settling through them, may be recovered from such trading members/clients.
Non-fulfillment of either the whole or part of the margin obligations shall be treated as a violation of the Rules, Bye-Laws and Regulations of the Clearing Corporation. The violation shall attract actions as specified under Client Margin Reporting. In addition and without prejudice to the foregoing, the MCCIL may, within such time as it may deem fit, advice the Exchange to withdraw any or all of the membership rights of the clearing member including the withdrawal of trading facilities of all trading members and/ or clearing facility of Clearing Member participants clearing through such clearing members, without any notice. MCCIL may, take additional measures like, imposing penalties, collecting appropriate deposits, invoking bank guarantees, encashment of fixed deposit receipts, realizing money by disposing off the securities and exercising such other risk containment measures as it deems fit and may further take such disciplinary action as it may deem fit and appropriate in this regard.
For the purpose of monitoring members who have high capital utilizations, the methodology as specified hereunder or such other methodology as may be specified by the relevant authority from time to time shall be adopted,
To enhance the risk management capabilities of the clearing / trading members and to avoid a situation of disablement, members are being provided an additional risk management facility - the Voluntary Close out. This facility enables clearing/trading members to voluntarily define a limit for margins/ positions beyond which all the orders would get risk managed. Clearing members desirous of availing the facility shall define limit for margins (upper limit) beyond which they shall move into Voluntary Close out mode and a limit (lower limit) below which they shall move out of Voluntary Close out mode. Similarly trading members desirous of availing the facility shall define separate limits for margins and positions (upper limit) beyond which they shall move into Voluntary Close out mode and a limit (lower limit) below which they shall move out of Voluntary Close out mode.
