Violations
PRISM (Parallel Risk Management System) is the real-time position monitoring and risk management system for the Futures and Options market segment at NSE Clearing. The risk of each trading and clearing member is monitored on a real-time basis and alerts/disablement messages are generated if the member crosses the set limits.
Clearing members, who have violated any requirement and / or limits, may reduce the position by closing out its existing position or, bring in additional cash deposit by way of cash or bank guarantee or FDR or securities. Similarly, in case of margin violation by Trading members, clearing member has to set its limit for enablement.
The initial margin on positions of a CM is computed on a real time basis i.e. for each trade. The initial margin amount is reduced from the effective deposits of the CM with the Clearing Corporation. For this purpose, effective deposits are computed by reducing the total deposits of the CM by Rs. 50 lakhs (referred to as minimum liquid networth). The CM receives warning messages on his terminal when 70%, 80%, and 90% of the effective deposits are utilised. At 100% the clearing facility provided to the CM is withdrawn. Withdrawal of clearing facility of a CM in case of a violation will lead to withdrawal of trading facility for all TMs and/ or custodial participants clearing and settling through the CM.
A member is provided with warnings at 70%, 80% and 90% level before his trading/ clearing facility is withdrawn. A CM may thus accordingly reduce his exposure to contain the violation or alternately bring in Additional Base Capital.
This violation occurs when the exposure margin of a Clearing Member exceeds his liquid networth, at any time, including during trading hours. The liquid net worth means the effective deposits as reduced by initial margin, extreme loss margins and minimum liquid net worth. In case of violation, the clearing facility of the clearing member is withdrawn leading to withdrawal of the trading facilities of all trading members and/ or clearing facility of custodial participants clearing through the clearing member.
The total margins (initial margins and extreme loss margins) on positions taken by a TM are computed on a real time basis and compared with the TM limits set by his CM. The total margin amount is reduced from the TM limit set by the CM. Once the TM limit has been utilised to the extent of 70%, 80%, and 90%, a warning message is received by the TM on his terminal. At 100% utilization, the trading facility provided to the TM is withdrawn.
When the open position of any Trading member/FPI/MF exceeds the position limit , following penalty shall be levied for position limit violation. Further Additional margin shall also be levied in case of position limit violation by Trading member.
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Additionally, the member will be referred to the Disciplinary Action Committee for suitable action.
The applicable additional margin shall be based on slab-wise percentage breach of applicable position limits.
| 100% to less than 110% | 5% |
| 110% to less than 125% | 10% |
| 125% to less than 150% | 15% |
| 150% and above | 20% |
- The additional margin percentage shall be levied on (Value of underlying price x Position quantity in breach)
- Levy of additional margin shall be applicable from the first instance of violation in a calendar quarter.
- The additional margin applicable shall be blocked from the proprietary collateral of the Clearing member on T+1 day till the positions is below the applicable limits.
Instances’ as mentioned above shall refer to all instances of position limit violations in a calendar quarter. For the purpose of levy of penalties and additional margin, the number of instances of position limit violations across all underlying in a calendar quarter shall be considered.
When the open position of any Client/NRI/ FPI Category II (individuals, family offices and corporates)/scheme of MF, exceeds the position limit at the end of the day the same shall be treated as a violation.
In the event of violation, the following penalty would be charged to the clearing members for every day of violation:
1% of the value of the quantity in violation (i.e., excess quantity over the allowed quantity, valued at the closing price of the security in the normal market of the Capital Market segment of the Exchange) per client or
Rs.1,00,000 per client, whichever is lower, subject to a minimum penalty of Rs.5,000/- per violation / per client.
When the client level/NRI/scheme of mutual fund violation is on account of open position exceeding 5% of the open interest, a penalty of Rs.5000 per instance shall be levied to the clearing member.
Any person or persons acting in concert who together own 15% or more of the open interest on a particular underlying index is required to report this fact to the Exchange/ Clearing Corporation. Failure to do so is treated as a violation and attracts appropriate penal and disciplinary action in accordance with the Rules, Byelaws and Regulations of the Clearing Corporation.
For futures contracts, open interest is equivalent to the open positions in the futures contract multiplied by last available traded price or closing price, as the case may be. For option contracts, open interest is equivalent to the notional value which is computed by multiplying the open position in that option contract with the last available closing price of the underlying.
At the end of each day during which the ban on fresh positions is in force for any scrip, when any member or client has increased his existing positions or has created a new position in that scrip the client/ TMs are charged a penalty.
The penalty is recovered from the clearing member affiliated with such trading members/clients on a T+1 day basis along with pay-in. The amount of penalty is informed to the clearing member at the end of the day.
This violation takes place when a clearing member utilises the collateral of one TM and/ or constituent towards the exposure and/ or obligations a TM/ constituent, other than the same TM and/ or constituent.
When option contracts are exercised by a CM, where no open long positions for such CM/ TM and/ or constituent exist at the end of the day, at the time the exercise processing is carried out, it is termed as violation of exercised positions.
Updated on: 04/07/2024
