Margins
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 margining system. The actual margining is done on-line. NSE Clearing uses the SPAN® (Standard Portfolio Analysis of Risk) system for the purpose of margining, which is a portfolio based system.
Initial Margin
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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.
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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:
- Cash
- Fixed Deposit Receipts (FDRs) issued by approved banks.
- Bank Guarantee in favour of NSE Clearing from approved banks in the specified format.
- Approved securities in demat form pledged in favour of Clearing Corporation from any other depository participant of NSDL or CDSL.
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 Net worth is computed by reducing the initial margin payable and extreme loss margin payable at any point in time from the effective deposits.
The Liquid Net worth maintained by CMs at any point in time should not be less than Rs.50 lakhs (referred to as Minimum Liquid Net Worth).
Initial Margin requirement = Total SPAN Margin Requirement + Delivery Margins + Margins on consolidated crystallized obligations
Extreme Loss Margins
The extreme loss margins for options and futures contracts on index and stocks are as follows:
| Product | Extreme Loss Margin |
|---|---|
| Index Derivatives | 2% of the notional value |
| Stock Derivatives | 3.5% of the notional value |
For this purpose, notional value means:
- For a futures contract - the contract value at last traded price/closing price.
- For a short options contract – the value of underlying index or the value of an equivalent number of underlying shares as conveyed by the short options contract, in the underlying market, based on the last available closing price.
- In case of calendar spread positions in futures contracts, extreme loss margin is levied on one third of the value of the open position of the far month futures contract.
- In case of short index options contracts that are deep out of the money (i.e., strikes out of the money by more than 10% from the previous day closing underlying price), the applicable Extreme Loss Margin is 3%.
- In case of short index option contracts with residual maturity of more than 9 months, the applicable Extreme Loss Margin is 5%.
- In case of short single stock options contracts that are deep out of the money (i.e., strikes out of the money by more than 30% from the previous day closing underlying price), the applicable Extreme Loss Margin is 5.25%.
The calendar spread position is granted calendar spread treatment till the expiry of the near month contract. The benefit of calendar spread in extreme loss margin is not provided for option contracts as exposure is made applicable only for short positions. As no extreme loss margin is levied on long positions there cannot be any offset provided.
The margin on consolidated crystallized obligation in derivatives represents:
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On intraday basis |
Payable crystallized obligations based on the closed-out futures positions and payable/receivable premium at client level |
|---|---|
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At end-of-day |
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.
- For securities with intra-day price movement (maximum of [High-Low], [High-Previous Close], [Low-Previous Close]) of more than 10% in the underlying market for 3 or more days in last one month, the minimum total margins is equal to the maximum intra-day price movement of the security observed in the underlying market in last one month. The same is continued till monthly expiry date of derivative contracts which falls after completion of three months from date of levy.
- For securities with intra-day price movement (maximum of [High-Low], [High-Previous Close], [Low-Previous Close]) of more than 10% in the underlying market for 10 or more days in last six months, the minimum total margins is equal to the maximum intraday price movement of the security observed in the underlying market in last six months. The same is continued till monthly expiry date of derivative contracts which falls after completion of one year from date of levy.
Margin Reports
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.
Updated on: 04/07/2024
