1 Initial Margin
1.1  Categorisation of Volatility
  Commodities are classified into three categories of volatility based upon the realized volatility for last three years as given below.

Realized volatility is calculated from a series of daily log normal return of main near month future contracts of respective commodity. The series of daily log normal return is rolled over to the next month contract on start of tender period, if applicable. If tender period is not applicable, then rollover is done on the day after the expiry of near month contract

Exchange having maximum average daily turnover across all derivative contracts on the respective commodity based on last six months period are termed as Lead Exchange. Clearing Corporation of the Lead Exchange carries out the categorisation of respective commodities and same is intimated to other exchanges and adopted by all other Clearing Corporation

Volatility Category of Commodity Realized Annualized Volatility criteria
High Above 20%
Medium Above 15% to 20%
Low 0 to 15%

1.2  Computation of Initial Margin
  ICCL shall use the Standard Portfolio Analysis of Risk ("SPAN1") methodology for the purpose of real time risk management.

The Initial Margin requirement is based on a worst scenario loss of a portfolio of an individual client comprising his positions in options and futures contracts on the same underlying across different maturities and across various scenarios of price and volatility changes. ICCL imposes initial margins sufficient to cover its potential future exposure to participants in the interval between the last margin collection and the close out of positions following a participant default. The Initial Margin requirements are set so as to provide coverage of at least a 99% single-tailed confidence interval of the estimated distribution of future exposure over at least a 2 day time horizon.

The client-wise margins are grossed across various clients at the Trading / Clearing Member level. The proprietary positions of the Trading / Clearing Member are treated as that of a client (net basis).

The margins levied to members are levied and collected in INR.

1.3  Portfolio Based Margining
  The parameters involved in a portfolio based margining approach include-

A. Worst Scenario Loss
  The worst case loss of a portfolio is calculated by valuing the portfolio under several scenarios of changes in the price and volatility. The scenarios to be used for this purpose would be:
Risk Scenario Number Price Move in Multiples of Price Range Volatility Move in Multiples of Volatility Range Fraction of Loss to be Considered
1 0 +1 100%
2 0 -1 100%
3 +1/3 +1 100%
4 +1/3 -1 100%
5 -1/3 +1 100%
6 -1/3 -1 100%
7 +2/3 +1 100%
8 +2/3 -1 100%
9 -2/3 +1 100%
10 -2/3 -1 100%
11 +1 +1 100%
12 +1 -1 100%
13 -1 +1 100%
14 -1 -1 100%
15 +2 0 35%
16 -2 0 35%

The probable premium value at each price scan point for volatility up and volatility down scenarios is calculated and then compared to the theoretical premium value (based on last closing value of the underlying) to determine profit or loss. The Black-Scholes option pricing model is used for the purpose of calculation of probable/theoretical option values.

The maximum loss under any of the sixteen scenarios is referred to as the Worst Scenario Loss.

B. Price Scan Range
  The Price Scan Range ("PSR") is the probable price change over a one-day period. PSR would be specified by ICCL from time to time. The PSR is referred to in standard deviation/ sigma terms. The standard deviation (volatility estimate) shall be computed using the Exponentially Weighted Moving Average method ("EWMA").

The estimate at the end of time period t (σt) shall be estimated using the volatility estimate at the end of the previous time period. i.e. as at the end of t-1 time period (σt-1), and the return (rt) observed in the futures market during the time period t.

The volatility estimated at the end of the day's trading would be used in calculating the initial margin calls at the end of the same day.

The formula shall be as under:

Price Scan Range formula


  • λ is a parameter which determines how rapidly volatility estimates changes. The value of λ is currently fixed at 0.94.
  • σ (sigma) means the standard deviation of daily returns in the futures market.
  • "Return" is defined as the logarithmic return: rt = ln (St/St-1) where St is the price at time t.

The price scan range for futures and option on individual securities is also linked to liquidity. The same is measured in terms of impact cost for an order size of INR 5 lakh. This is in addition to the requirement of increasing the price scan range on account of look ahead period as may be applicable.

The mean impact cost as stipulated by SEBI is calculated on the 15th of each month on a rolling basis considering the order book snap shots of previous six months. 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 is scaled by square root of three and scaling is dropped when the impact cost drops to 1% or less. Such changes are applicable on all existing open positions from the third working day from the 15th of each month.

C. Volatility Scan Range
  The Volatility Scan Range ("VSR") is the amount by which the implied volatility is changed in each risk array scenario. The VSR is referred to in percentage terms.

The PSR and VSR for generating the scenarios would be as below or such other percentage as may be specified by ICCL from time to time.

Sr. No. Particulars PSR VSR
1 Commodity 3.5 sigma 3.5%

1.4  Initial Margin Requirement
  The initial margin is deducted from the liquid assets of the clearing member on an online, real time basis. Based on the volatility category, minimum initial margin (“IM”) and minimum Margin Period of Risk (“MPOR”) is as follows:

Volatility Category of Commodity Minimum IM Minimum MPOR
Non - Agri Agri Non - Agri Agri
High 10% 12% 3 4
Medium 8% 10% 2 3
Low 6% 8% 2 3

*Note - the Minimum IM % mentioned in the above table is not scaled up by MPOR
2 Extreme Loss margin
  The extreme loss margin is deducted from the liquid assets of the clearing member on an online, real time basis.

Sr. No. Particulars Extreme Loss Margin
1 Commodity Derivatives 1% on gross open positions

3 Crystallised Loss Margin
  The Crystallised Loss Margin ("CLM") is levied to cover the risk arising out of accumulation of crystallised obligations incurred on account of intra-day squaring off of positions. The intra-day crystallised losses are monitored and the CLM is blocked by ICCL from the free collateral on an online real-time basis only for those transactions which are subject to upfront margining.Crystallised losses are offset against crystallised profits at a client level,if any.

4 Spread margin
  ICCL shall provide spread margin benefit in the following cases:
  • Different expiry date contracts of the same underlying
  • Two contracts variants having the same underlying commodity

ICCL shall charge minimum 25% of the initial margin on each of the individual legs of the spread. Maximum benefit in initial margin on spread positions shall be restricted to 75%. Benefit in initial margin shall be permitted only when each individual contract in the spread is from amongst the first three expiring contracts. Margin benefit on spread positions shall be withdrawn latest by the start of tender period or the start of expiry day, whichever is earlier.

In case of such spread positions additional margins shall not be levied. No benefit in ELM shall be provided for spread positions i.e. ELM shall be charged on both individual legs. ICCL may charge margins higher than the minimum specified depending upon its risk perceptions.

Futures contracts in a commodity complex

ICCL shall provide spread benefit in initial margin across futures contracts in a commodity complex provided the following conditions are met:
  • Minimum coefficient of correlation (r) between futures prices of the two commodities is 0.90.
  • Back testing for adequacy of spread margin to cover MTM has been carried out for a minimum period of one year (back testing for at least 250 days wherein daily settlement price of futures used for back testing have been determined from traded futures prices).
  • Initial margin after spread benefit has been able to cover MTM on at least 99% of the days as per back testing

Maximum benefit in initial margin on spread positions is restricted to 50%. Benefit in initial margin shall be permitted only when each individual contract in the spread is from amongst the first three expiring contracts. Margin benefit on spread positions shall be withdrawn latest by the start of tender period or the start of expiry day, whichever is earlier.

In case of such spread positions additional margins shall not be levied. No benefit in ELM shall be provided for spread positions i.e. ELM shall be charged on both individual legs. ICCL may charge margins higher than the minimum specified depending upon its risk perceptions

ICCL shall continuously monitor dynamics of the commodities and their correlation and if there are changes such that spread margin benefit is no longer appropriate to be given, take appropriate further course of action.

5 Tender Period Margin
  ICCL may levy Tender period/Pre-expiry margin which shall be increased gradually every day beginning from the pre-determined number of days before the expiry of the contract as applicable. ICCL shall determine the quantum of tender period margin as appropriate based on the risk characteristics of the particular commodity. Tender Period Margin shall be applicable on both buy and sell side.

6 Delivery Period Margin
  Delivery Margin is levied on the long and short positions marked for delivery till the pay-in is completed by the Clearing Member. Once delivery period margin is levied, all other applicable margins may be released.

It is levied till the time the member makes pay in of funds to collect delivery. Delivery Period margin is exempted if goods have been tendered with all the documentary evidence.

Delivery period margins shall be higher of:
  • 3% + 5 day 99% VaR of spot price volatility
  • 25%
ICCL may impose higher delivery period margin based on the risk characteristics of the particular commodity.

7 Additional and Special Margin
  In case of additional volatility, an additional margin (on both buy & sell side) and / or special margin (on either buy or sell side) at such percentage, as deemed fit; will be imposed in respect of all outstanding positions. Such margins shall be imposed over and above the other margins specified by ICCL and shall be collected in any form of collateral or in Cash only as may be prescribed by ICCL/BSE/SEBI from time to time.

8 Lean Period Margin
  Lean Period is the period before the arrival of new crop. In case of Agri commodities, during lean period, there is often uncertainty about the arrivals of new crop which might lead to higher volatility in prices of commodities during this period.

ICCL shall levy additional lean period margin of 2% on all Agri Contracts expiring during Lean Period .
9 Additional Ad-hoc Margins
  As a risk containment measure, ICCL may require clearing members to pay additional margins as may be decided from time to time. This shall be in addition to the aforementioned margins, which are or may have been imposed from time to time.

However, the ICCL shall only levy additional margins post consideration of the following factors:

  • Additional risk management measures (like ad-hoc margins) shall normally be required only to deal with circumstances that cannot be anticipated or were not anticipated while designing the risk management system. If ad-hoc margins are required to be imposed with any degree of regularity, ICCL shall examine whether the circumstances that give rise to such margins can be reasonably anticipated and can therefore be incorporated into the risk management system mandated by SEBI. ICCL shall analyse such situations and bring the matter to the attention of SEBI for further action.
  • Any additional margins that ICCL may impose shall be based on objective criteria and shall not discriminate between members on the basis of subjective criteria.
10 Concentration margins
  ICCL may impose adequate concentration margins (only on concentrated positions) to cover the risk of longer period required for liquidation of concentrated positions in any commodity. The threshold value for imposing concentration margin may be determined taking into account factors including open interest, concentration and estimated time to liquidation based on prevailing liquidity and possible reduction in liquidity in times of market stress etc. The quantum of concentration margins imposed may vary based on the level of concentration.

11  Updation of risk parameters
  The ICCL SPAN risk management parameters shall be updated at Beginning-of-Day, End-of-Day and at intervals not exceeding 2 hours during the trading hours.

12  Enforcement and Collection of Margins
  Aforesaid margins are computed at a client level portfolio and grossed across all clients (including the proprietary positions of member) at the member level. Margins are collected/adjusted upfront from the liquid assets of the Clearing Members on an on-line real time basis

13  Measures in case of repeated shortfall in margin/pay-in:
  In case of repeated margin/pay-in shortfalls beyond a threshold amount by any member in a month, following risk mitigation measures shall be initiated by ICCL:

  • The member shall be put in square off mode and required to reduce positions.
  • The member shall be charged initial margins at a higher rate for the next one month,
    The member shall be subjected to a penal exposure free deposit equal to the cumulative funds/margin shortage over previous one month which could be kept with ICCL for the next month.
  • ICCL shall keep a closely monitor such a member.

14  Mode of payment of Margin
  Clearing members shall provide for margin in any one or more of the eligible collateral modes as specified by ICCL. The margins shall be collected/adjusted from the liquid assets of the member on a real time basis.

15  Mark to market settlement
  The mark to market gains and losses shall be settled in cash before the start of trading on T+1 day. If mark to market obligations are not collected before start of the next day's trading, ICCL shall collect correspondingly higher initial margin to cover the potential for losses over the time elapsed in the collection of margins. All open positions of a futures contract shall be settled daily, only in cash, based on the Daily Settlement Price ("DSP"). DSP shall be reckoned and disseminated by ICCL at the end of every trading day.

16  Risk Reduction Mode
  The entry and exit threshold is detailed below:

  • Clearing Members: Put in RRM at 90% collateral utilisation & moved back to normal mode when utilisation goes below 85%.
  • Trading Members: Put in RRM at 90% utilisation of trading limit assigned by their Clearing Members & moved back to normal mode when limit utilisation goes below 85%.

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