The core of the risk management system is the liquid assets deposited by the Members with BSE. These liquid assets cover the following five requirements:
Base Minimum Capital (BMC)
All Members are required to maintain a BMC of Rs.10 lakhs with BSE in the prescribed manner at all times. The composite corporate Members are required to maintain BMC in multiple of the membership rights held by them. The BMC, as prescribed by SEBI, is required to be kept in the form of cash (minimum 12.5%), Fixed Deposit Receipt(s) or Bank Guarantee(s) issued by bank(s) (minimum 37.5%) and balance in the form of eligible shares. The eligible shares for the purpose of the securities portion of the BMC are A and B group securities forming part of Group I classified as per the parameters of volatility and liquidity as stipulated in SEBI circular No. MRD/DoP/SE/Cir-07/2005 dated February 23, 2005. BMC is not available for adjustment towards margins.
Members are also allowed to deposit Additional Capital (AC) over and above the BMC with BSE as follows :
(Liquid Assets) :
Other Liquid Assets - Non-Cash Component
| Bank Fixed Deposit Receipts ( FDRs ).
| Bank Guarantee
||Limit on BSE's exposure to a single bank exposure as stipulated in the SEBI circular No. MRD/DoP/SE/Cir-07/2005 dated February 23, 2005.
| (iv) Securities of the Central Government * .
|Units of liquid Mutual Fund (or) Govt. Sec. Mutual Fund (by whatever name called which invests in government securities) *.
(Total of Other Liquid Assets should not exceed total of Cash Equivalent) :
|Non-Cash equivalent :
|Liquid (Group-I) Equity Shares (as per the criteria for classification of Securities on the basis of liquidity).
(Only A and B group securities forming part of such Group I)
| Same as the Value at Risk (VaR) margin for the respective shares.
||Limit on BSE's exposure to a single issuer as stipulated in the SEBI circular No. MRD/DoP/SE/Cir-07/2005 dated February 23, 2005.
|Mutual Fund units (other than those listed under cash equivalent). *
|| Same as the VaR margins for the units computed using the traded price on BSE, if available, or else, using the NAV of the unit treating it as a liquid security.
* BSE, at present, does not accept such liquid assets towards collateral.
Cash equivalents should be at least 50% of the liquid assets. This implies that Other Liquid Assets in excess of the total Cash Equivalents is not regarded as part of the Total Liquid Assets.
- MTM (Mark-To-Market) Losses: Mark-to-market losses on outstanding settlement obligations of the Member.
- VaR Margins: Value at risk margins to cover potential losses for 99% of the days.
- Extreme Loss Margins: Margins to cover the expected loss in situations that lie outside the coverage of the VaR margins.
- Base Minimum Capital: Capital required for all risks other than the market risk (for example, operational risk and client claims).
- Special Margin : Special margin collected as a surveillance measure.
Members are required to maintain the liquid assets (collateral) to cover all the above five requirements. There are no other margins in the risk management system.
- Single Trade
- Cumulative Trades for the Day
Immediately upon the execution of the order where the traded quantity, either buy or sell ,on account of any trade is more than 0.5% of the number of equity shares of the company listed on BSE.
Within one hour from the closure of the trading hours, where the cumulative quantity traded under any single client code on that day either purchase or sale is more than 0.5% of the number of equity shares of the company listed at BSE.
- The valuation of shares deposited by the Members with BSE is done on a daily basis, and a hair-cut equivalent to the respective VaR of individual Security is applied i.e., only the residual value of eligible shares deposited is considered for the purpose of evaluation of capital(collateral) deposited by the Members with BSE.. The eligible shares deposited by the Members towards BMC are accepted by BSE in demat form only.
- The cash can be deposited by the Members towards capital by submitting instructions to their clearing banks to debit their bank accounts and credit the amount to BSE's account.
- As regards the Fixed Deposit Receipts (FDRs) of banks, the duly discharged FDRs are required to be submitted by the Members to BSE in the name of " BSE Limited. A/c - trade name of the Member" issued by any Mumbai-based branch or payable at any Mumbai-based branch of any scheduled commercial or co-operative bank.
- The bank guarantees submitted by the Member towards the capital have to be in the approved format in favour of BSE either issued or payable by any Mumbai-based branch of a scheduled commercial bank only. However, in case FDRs/ bank guarantees are issued by the outstation branches of scheduled commercial banks (i.e., branches outside Mumbai), the payment of the proceeds on encashment of FDRs and invocation of bank guarantees by BSE has to be assured by a Mumbai-based branch of the concerned issuing bank.
For every instance of deactivation of BOLT TWSs due to non-availability of total liquid assets, fines/penalties are levied as per the structure given below :
|Fines/penalties for de-activation of BOLT TWSs due to non-availability of Total Liquid Assets (collateral) during the trading session and in case of de-activation of BOLT TWSs due to non-availability of total liquid asset at the end of day because of shortfall of Total Liquid Assets due to expiry of Bank Guarantees/Fixed Deposit Receipts, evaluation of securities, etc.
|| 1 st to 5 th instance.
||Rs. 5,000/- per instance.
|| 6 th to 15 th instance
||Rs. 10,000/- per instance or 0.25% of the amount of shortfall of total liquid assets on account of violation of trading limits, whichever is higher.
|| 16 th to 30 th instance
||Rs. 15,000/- per instance or 0.25% of the amount of shortfall of total liquid assets on account of violation of trading limits, whichever is higher.
BSE, as a precautionary measure, provides on-line warnings to its Members on the BOLT TWSs when they reach 70%, 80% and 90% of the utilisation of Total Liquid Assets (TLA). When a Member crosses 100% of the utilization of TLA , a message is flashed on his BOLT TWSs which says "Capital Violated : Member Trading Suspend" and immediately thereafter, all his BOLT TWSs get deactivated. The BOLT TWSs of the Members in such cases are reactivated only after they deposit the required additional liquid assets. To avoid de-activation of BOLT TWSs and levy of fines/penalties, the additional liquid assets should be deposited with BSE sufficiently in advance.
Liquidity Categorization of Securities
The securities are classified into three groups based on their liquidity:
|Liquid Securities (Group I)
||At least 80% of the days
||Less than or equal to 1%
|Less Liquid Securities (Group II)
|| At least 80% of the days
||More than 1%
|Illiquid Securities (Group III)
|| Less than 80% of the days
The trading frequency and impact cost is calculated on the 15th of each month on a rolling basis considering the previous six months for impact cost and previous six months for trading frequency. On the basis of the trading frequency and impact cost so calculated, the securities move from one group to another group from the 1st of the next month.
Categorisation of Newly-listed Securities
For the first month and till the time of monthly review as mentioned above, a newly listed stock is categorised in that group where the market capitalization of the newly listed stock exceeds or equals the market capitalization of 80% of the stocks in that particular group. Subsequently, after one month, whenever the next monthly review is carried out, the actual trading frequency and impact cost of the security is computed, to determine the liquidity categorization of the security.
In case any corporate action results in a change in ISIN, the securities bearing the new ISIN is treated as newly listed Security for group categorization.
Calculation of mean impact cost:
The mean impact cost is calculated in the following manner:
Impact cost is calculated by taking four snapshots in a day from the order book in the past six months. These four snapshots are randomly chosen from within four fixed ten-minutes windows spread through the day.
The impact cost is the percentage price movement caused by an order size of Rs.1 lakh from the average of the best bid and offer price in the order book snapshot. The impact cost is calculated for both, the buy and the sell side in each order book snapshot.
Dissemination of Information
The lists of securities forming part of groups I, II and III are disseminated on the BSE website on a monthly basis.