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| 1.1 |
Computation of Initial Margin |
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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 is set so as to provide coverage of at least a 99% single-tailed confidence interval of the estimated distribution of future exposure over a one day time horizon.
The client-wise margins is 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.
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| 1.2 |
Portfolio Based Margining |
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The parameters involved in a portfolio based margining approach include-
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| I. |
Worst Scenario Loss |
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The worst case loss of a portfolio is calculated by valuing the portfolio under several scenarios of changes in price and volatility. The scenarios to be used for this purpose would be: |
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| 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% |
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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 1976 option pricing model is used for the purpose of calculation of probable/theoretical option values for all Interest Rate Options while the Black-Scholes option pricing model is used for the purpose of calculation of probable/theoretical option values for all Currency and Cross-Currency Options.
The maximum loss under any of the scenario (considering only 35% of the loss in case of scenarios 15 and 16) is referred to as the Worst Scenario Loss.
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| II. |
Price Scan Range |
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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.
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| III. |
Volatility Scan Range |
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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.
| 1 |
EURINR |
3.5 sigma |
NA |
| 2 |
EURUSD |
3.5 sigma |
NA |
| 3 |
GBPINR |
3.5 sigma |
NA |
| 4 |
GBPUSD |
3.5 sigma |
NA |
| 5 |
JPYINR |
3.5 sigma |
NA |
| 6 |
USDINR |
3.5 sigma |
NA |
| 7 |
USDJPY |
3.5 sigma |
NA |
| 1 |
EURINR |
3.5 sigma |
3.00% |
| 2 |
EURUSD |
3.5 sigma |
3.00% |
| 3 |
GBPINR |
3.5 sigma |
3.00% |
| 4 |
GBPUSD |
3.5 sigma |
3.00% |
| 5 |
JPYINR |
3.5 sigma |
3.00% |
| 6 |
USDINR |
3.5 sigma |
3.00% |
| 7 |
USDJPY |
3.5 sigma |
3.00% |
| 1 |
IRF on 10 year GOI Security |
3.5 sigma |
NA |
| 2 |
IRF on 91 Day GOI T-Bill |
3.5 sigma |
NA |
| 3 |
6/10/13 year cash settled G-Secs |
3.5 sigma |
NA |
| 4 |
MIBOR Futures |
3.5 sigma |
NA |
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| 1.3 |
Initial Margin Requirement |
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The initial margin is deducted from the liquid assets of the clearing member on an online, real time basis.
| 1 |
EURINR |
2.00% |
| 2 |
EURUSD |
2.00% |
| 3 |
GBPINR |
2.00% |
| 4 |
GBPUSD |
2.00% |
| 5 |
JPYINR |
2.30% |
| 6 |
USDINR |
1.00% |
| 7 |
USDJPY |
2.00% |
| 1 |
EURINR |
SPAN based margin |
| 2 |
EURUSD |
2.00% |
| 3 |
GBPINR |
SPAN based margin |
| 4 |
GBPUSD |
2.00% |
| 5 |
JPYINR |
SPAN based margin |
| 6 |
USDINR |
SPAN based margin |
| 7 |
USDJPY |
2.00% |
| 1 |
IRF on 10-year GOI Security |
1.60% |
| 2 |
IRF on 91 Day GOI T-Bill |
0.05% |
| 3 |
6/10/13 year cash settled G-Secs |
1.50% |
| 4 |
MIBOR Futures |
5.00% |
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The extreme loss margin is deducted from the liquid assets of the clearing member on an online, real time basis.
| 1 |
EURINR |
0.3% of the mark to market value of the contract for all gross open positions |
| 2 |
EURUSD |
1% of the mark to market value of the contract for all gross open positions |
| 3 |
GBPINR |
0.5% of the mark to market value of the contract for all gross open positions |
| 4 |
GBPUSD |
1% of the mark to market value of the contract for all gross open positions |
| 5 |
JPYINR |
0.7% of the mark to market value of the contract for all gross open positions |
| 6 |
USDINR |
1% of the mark to market value of the contract for all gross open positions |
| 7 |
USDJPY |
1% of the mark to market value of the contract for all gross open positions |
| 1 |
EURINR |
1.5% of the Notional Value of the open short option position |
| 2 |
GBPINR |
1.5% of the Notional Value of the open short option position |
| 3 |
JPYINR |
1.5% of the Notional Value of the open short option position |
| 4 |
EURUSD |
1% of the Notional Value of the open short option position |
| 5 |
GBPUSD |
1% of the Notional Value of the open short option position |
| 6 |
USDINR |
1.5% of the Notional Value of the open short option position |
| 7 |
USDJPY |
1% of the Notional Value of the open short option position |
| 1 |
IRF on 10 year G-Secs |
0.30% of the mark to market value of the contract for all gross open positions |
| 2 |
IRF on 91 Day GOI T-Bill |
0.03% of the mark to market value of the contract for all gross open positions |
| 3 |
6/10/13 year cash settled G-Secs |
0.50% of the mark to market value of the contract for all gross open positions |
| 4 |
MIBOR Futures |
1% of the mark to market value of the contract for all gross open positions |
| 1 |
6/10/13 year cash settled G-Secs |
0.50% of the Notional Value of the open short option position |
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Notional Value would be calculated on the basis of the latest exchange rate for respective exchange rate.
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A currency futures position at one maturity which is hedged by an offsetting position at a different maturity is treated as a calendar spread.
A long currency option position at one maturity and a short option position at a different maturity in the same series, both having the same strike price are treated as a calendar spread. The margin is calculated on the basis of delta of the portfolio in each month. A portfolio consisting of a near month option with a delta of 100 and a far month option with a delta of –100 bears a spread charge equal to the spread charge for a portfolio which is long 100 near month currency futures and short 100 far month currency futures. Portfolio pertains to a portfolio consisting of futures and /or options contract on a particular underlying. Option positions of different expiry, irrespective of their strike prices, shall also attract calendar spread margin.
The benefit for a calendar spread continues till expiry of the near month contract. The calendar-spread margin shall be charged in addition to the worst-scenario loss of the portfolio.
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Up to 1 month |
2 months |
3 months |
4 months and above |
| 1 |
EURINR |
INR 700 |
INR 1,000 |
INR 1,500 (3 months and above) |
| 2 |
EURUSD |
INR 1,500 |
INR 1,800 |
INR 2,000 |
INR 2,100 |
| 3 |
GBPINR |
INR 1,500 |
INR 1,800 |
INR 2,000 (3 months and above) |
| 4 |
GBPUSD |
INR 1,500 |
INR 1,800 |
INR 2,000 |
INR 2,100 |
| 5 |
JPYINR |
INR 600 |
INR 1,000 |
INR 1,500 (3 months and above) |
| 6 |
USDINR |
INR 400 |
INR 500 |
INR 800 |
INR 1,000 |
| 7 |
USDJPY |
INR 1,500 |
INR 1,800 |
INR 2,000 |
INR 2,100 |
| 1 |
IRF on 10-year G-Secs |
INR 2,000 |
| 2 |
IRF on 91 Day GOI T-Bill |
INR 100 |
INR 150 |
INR 200 |
INR 250 |
| 3 |
6/10/13 year cash settled G-Secs |
INR 1,500 |
INR 1,800 |
INR 2,100 |
INR 3,000 |
| 4 |
MIBOR Futures |
INR 6,500 |
INR 7,000 |
INR 7,500 (3 months and above) |
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For a calendar spread position, the extreme loss margin shall be charged on one third of the mark to market value of the far month contract.
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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.
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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.
- 05:00 p.m.
- 06:30 p.m.
- Interim risk File (5:00 p.m. – 8:00 p.m.)
- End-of-Day
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Assignment Margin shall be levied on assigned positions of the clearing members towards exercise settlement obligations for option contracts. For option positions exercised, the seller of the options shall be levied assignment margins which shall be 100% of the net exercise settlement value payable by a clearing member towards exercise settlement. Assignment margin shall be levied till the completion of pay-in towards the exercise settlement. Assignment margins shall be computed as net of assignment settlement and futures final settlement.
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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.
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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, extreme loss margins, calendar spread margins and mark to market settlements and report details of such margins collected from their client/constituents to ICCL.
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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.
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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.
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Premium is settled in INR and would be 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. For arriving at the settlement value in INR for EURUSD and GBPUSD contracts, the latest available RBI reference rate for USDINR shall be used. For USDJPY contracts, the settlement value in INR shall be arrived at using the latest available exchange rate published by RBI for JPYINR.
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The mark to market gains and losses are 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 collects correspondingly higher initial margin to cover the potential for losses over the time elapsed in the collection of margins.
The daily closing price of currency futures contract for mark to market settlement is calculated on the basis of the last half an hour weighted average price of the futures contract. In the absence of trading in the last half an hour the theoretical price is considered.
The Mark to Market settlement for Cross-Currency derivative contracts may be calculated using the following formula:
(C2 – C1) x R2,
Where C2 is closing price of cross-currency derivative contract on T day, C1 is closing price of cross-currency derivative contract on (T - 1) day, R2 is USD-INR reference rate on T day.
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The entry and exit threshold is detailed below:
- Clearing Members: Put in RRM at 85% collateral utilisation & moved back to normal mode when utilisation goes below 80%.
- Trading Members: Put on RRM at 85% utilisation of trading limit assigned by their Clearing Members & moved back to normal mode when limit utilisation goes below 80%.
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