Financial Daily from THE HINDU group of publications
Sunday, Dec 26, 2004
Financial Daily from THE HINDU group of publications Sunday, Dec 26, 2004 |
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Investment World
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Derivatives Markets Markets - Derivatives Markets Margining system
NSCCL has developed a comprehensive risk containment mechanism for the Futures & Options segment. The most critical component of a risk containment mechanism for NSCCL is the online position monitoring and margining system. The actual margining and position monitoring is done on-line, on an intra-day basis. NSCCL uses the SPAN (Standard Portfolio Analysis of Risk) system for the purpose of margining, which is a portfolio-based system. Initial margin NSCCL collects initial margin up-front for all the open positions of a Clearing Member (CM) based on the margins computed by NSCCL-SPAN. A CM is in turn required to collect the initial margin from the TMs and his respective clients. Similarly, a Trading Member 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 may be 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: a. For client positions - shall be netted at the level of individual client and grossed across all clients, at the Trading/ Clearing Member level, without any setoffs between clients. b. For proprietary positions - shall be 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 NSCCL. ABC can be provided by the members in the form of Cash, Bank Guarantee, Fixed Deposit Receipts and approved securities. Premium Margin In addition to Initial Margin, Premium Margin would be charged to members. The premium margin is the client wise margin amount payable for the day and will be required to be paid by the buyer till the premium settlement is complete. Assignment Margin Assignment Margin is levied on a CM in addition to SPAN margin and Premium Margin. (Source: www.nseindia.com)
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