Stress Test for Credit Risk
Equity Derivatives Segment :
Note: Day of Stress test –'S' day
The loss on closing out of client/proprietary positions is as per the following scenarios:
Price movement in respect of each underlying to the extent of 1.5 times the normal price scan range (PSR) and 1.5 times the normal volatility scan range ("VSR") is considered.
Underlying price increasing by 1.5 PSR, volatility increasing by 1.5 VSR.
Underlying price decreasing by 1.5 PSR, volatility increasing by 1.5 VSR.
Price movement in respect of each underlying over the last 10 years is considered. The maximum percentage price movement is applied to the price on the day for which the stress test is being done
Maximum percentage rise over a period of 1 day in last 10 years
Maximum percentage fall over a period of 1 day in last 10 years
All open positions are assumed to be squared up at the theoretical price corresponding to the revised prices of the underlying in each of the scenarios 1, 2, 3 and 4. The net profit/loss in squaring off the portfolio is calculated under each of the scenarios 1, 2, 3 and 4.
For each clearing member, the credit exposure to ICCL is calculated as follows:
- The time of pay-in deadline is considered as the time of stress test.
- It is assumed that clearing member will default at the time of pay-in.
- Loss is calculated at client portfolio level.
- For each client, residual loss is calculated as follows
||loss due to close-out of client positions
||margin supporting client positions
- All residual losses (residual profits are ignored) for all clients are grossed to compute total residual losses due to client positions.
- Loss due to close-out of proprietary positions is considered.
- Loss at (e) and loss at (f) and the net pay-in/pay-out requirement of the clearing member (pay-in and pay-out pertaining to requirements of both S-1 and S (till pay-in time) day to be reckoned) are assessed against required margins (excluding margin supporting client positions and excess collateral, if any). Equity scrips as collateral, if any, are valued with minimum 20% haircut.
For each of the scenarios 1, 2, 3 and 4, ICCL calculates the total credit exposure due to simultaneous default of at least 2 clearing members (and their associates) causing highest credit exposure.