Margin
1 Initial Margin
 
1.1 Computation of Initial Margin
  ICCL shall use the Standard Portfolio Analysis of Risk ("SPAN") 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. 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 a two days 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.

1.2 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 index and changes in the volatility of the index. 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:



Where:

  • 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 Index Products 3 sigma 4%
2 Stock Products 3.5 sigma 10%


1.3 Initial Margin Requirement
  The initial margin is deducted from the liquid assets of the clearing member on an online, real time basis.

Sr. No. Particulars Minimum Initial Margin
1 Index Products 7.07%
2 Stock Products 10.61%

2 Short Option Minimum Charge
 
2.1 Index Products
  5% of the notional value of all short Index options if:

Worst-scenario loss + Calendar spread margin < Short option minimum margin

The notional value of option positions is computed as the product of the short open position in that option contract multiplied by the previous day's closing price of the index futures contract, or such other price as may be specified by the ICCL from time to time.
2.2

Stock Products:

  7.5% of the notional value of all short Stock options if:

Worst-scenario loss + Calendar spread margin < Short option minimum margin

The notional value of option positions is computed as the product of the short open position in that option contract multiplied by the previous day's closing price of the underlying security, or such other price as may be specified by the ICCL from time to time.

3 Exposure Margin
  The exposure margin is deducted from the liquid assets of the clearing member on an online, real time basis.

Sr. No. Particulars Exposure Margin
Index Products
1 Index Futures contracts 4.24%
2 Short Index Options contracts 4.24%
Stock Products
1 Stock Futures contracts Higher of 7.07% or 1.5 sigma *1.41
2 Short Stock Option contracts Higher of 7.07% or 1.5 sigma *1.41

4 Calendar spread margin
  A Calendar Spread means a spread trade with a simultaneous long and short position on futures/options with the same underlying asset and strike price (in case of options) but with different maturities. The margin on calendar spread is calculated and benefit is given to the Members for such positions till expiry of near month contract. The calendar-spread margin is charged in addition to worst-scenario loss of the portfolio.

In the case of futures and options contracts on index and individual securities, the margin on calendar spread positions is calculated on the basis of delta of the portfolio consisting of futures and options contracts in each month.

The spread charge shall be 0.5% per month for the difference between the two legs of the spread subject to minimum 1% and maximum 3% on the far side of the spread with legs up to 1 year apart. While calculating the spread charge, the last available closing price of the far month contract is used to determine the spread charge.

Calendar Spread on Futures is levied on one third of the value of the open position of the far month futures contract.

5 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.

6 Cross-Margining
  The cross margining benefit across Equity Cash segment and Equity Derivatives segments is provided to all categories of market participants. The facility of cross margin benefits on off-setting positions is also available between S&P BSE SENSEX Futures and S&P BSE 100 Futures contracts traded on BSE Equity Derivatives Segment

Positions eligible for cross-margin benefit:

  • Index futures position and constituent stock futures position in derivatives segment
  • Index futures position in derivatives segment and constituent stock position in cash
  • Stock futures position in derivatives segment and the position in the corresponding underlying in cash segment
  • A basket of positions in index constituent stock/stock futures, which is a complete replica of the index in the ratio specified by BSE/ICCL, is eligible for cross margining benefit. The number of units is changed only in case of change in share capital of the constituent stock due to corporate action or issue of additional share capital or change in the constituents of the index
  • S&P BSE SENSEX Futures and S&P BSE 100 Futures contracts traded on BSE Equity Derivatives Segment


The positions in the derivatives segment for the stock futures and index futures shall be in the same expiry month to be eligible for cross margining benefit.


6.1 Computation of cross margin:
 
  • To begin with, a spread margin of 25% of the total applicable margin on the eligible off-setting positions, as mentioned above, is levied in the respective cash and derivative segments.
  • Cross margining benefit is computed at client level on an online real time basis and provided to the trading member / clearing member / custodian, as the case may be, who, in turn, pass on the benefit to the client. For institutional investors, however, the cross margining benefit is provided after confirmation of trades.
  • The computation of cross margining benefit is done at client level on an online real time basis and provided to the trading member / clearing member / custodian, as the case may be, who, in turn, shall pass on the benefit to the respective client.
  • For institutional investors the positions in Capital market segment is considered only after confirmation by the custodian on T+1 basis and on confirmation by the clearing member in Derivatives segment.
  • The positions in the Capital market and Derivatives segment is considered for cross margining only till time the margins are levied on such positions.
  • While reckoning the offsetting positions in the Capital market segment, positions in respect of which margin benefit has been given on account of early pay-in of securities or funds is not be considered.

7 Updation of risk parameters
  The ICCL SPAN risk management parameters shall be updated at:
  • Beginning-of-Day
  • 11:00 a.m.
  • 12:30 p.m.
  • 02:00 p.m.
  • 03:30 p.m.
  • End-of-Day


8 Imposition of Additional 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.

9 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.

Members are required to collect initial margins, exposure margins, calendar spread margins and mark to market settlements and report details of such margins collected from their client/constituents to ICCL.

10 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.

11 Net Option Value
  The Net Option Value ("NOV") is the current market value of the option times the number of options (positive for long options and negative for short options) in the portfolio. The Net Option Value would be added to the Liquid Net Worth of the clearing member i.e. the value of short options will be deducted from the liquid net worth and the value of long options will be added thereto.

Thus mark-to-market gains and losses on option positions are adjusted against the available liquid net worth of the Clearing Member. Since the options are premium style, there is no mark-to-market settlement of profit or loss.

12 Settlement of Premium
  Premium is settled in INR and paid in by the buyer in cash and paid out to the seller in cash on T+1 day. Until the buyer pays in the premium, the premium due is deducted from the available liquid assets on a real time basis.

13 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 on RRM at 90% utilisation of trading limit assigned by their Clearing Members & moved back to normal mode when limit utilisation goes below 85%.