CCIL runs a multilateral netting system for forex inter-bank transactions that nets the members payments and receipts in a currency, though they are due to or from different counterparties and settles the net position in both the legs of the transactions. The matched and accepted Forward deals are guaranteed for settlement from S-2 day and the Spot, Tom, Cash deals are guaranteed for settlement from the trade date as the CCIL becomes the central counterparty to every accepted trade through the process of novation.

The following are the pre-requisites for seeking Forex membership:

a. The member has to be an Authorised Dealer in Foreign exchange.
b. The member should have a Current account with Reserve Bank of India.
c. The member should have INFINET connectivity.

CCIL sets limits for each member bank on the basis of certain parameters such as Member’s credit rating, Net Worth, Asset value, Management quality etc.

Net Debit Cap (NDC) is a limit set in US dollars for each bank. A Member bank is not allowed to have a Net Sale position in excess of this limit with respect to deals submitted for settlement through CCIL on any given day. NDC is the upper limit set by CCIL on the basis of parameters such as a Member’s Credit rating, Net worth, Asset Value, Management quality etc.

Margin Factor (MF) for each bank is arrived at on the basis of its credit rating as determined by an independent rating agency and the volatility factor in respect of USD /INR exchange rate for 3 days holding period.

Exposure limit is arrived at based on the Member’s actual contribution to the Settlement Guarantee Fund, with the NDC remaining the upper cap.

Example:
Assuming, CCIL has fixed a Net Debit Cap of USD 90.00 million and margin factor of 4.5% for Bank A (based on the Net worth, Asset value, Profitability etc.). Bank A will be required to contribute USD 4.05 million towards the Settlement Guarantee Fund.

However, if Bank A requires a limit of only USD 50.00 million, it has to contribute USD 2.25 million toward the Settlement Guarantee Fund (i.e. Required Limit * Margin Factor).

Alternatively, if Bank A contributes only USD 2 million to SGF, then the limit available to Bank A would be USD 44.44 million ( SGF/Margin Factor).

How can members check for rejections on account of System Validation for deals reported through FRS?

Those trades that fail system validations are not taken into our system for further validations. The trades rejected outright because of incorrect format or technical failures are placed in a separate sub-folder called UINR under the received folder. Member has to check for the reason for rejected deals on account of technical validation under the path C:/CCIL/Receive/UINR.

What are the basic validations that CCIL does after the data is received in the system?

CCIL will perform the following validation checks:

Under what circumstances does the trade get rejected?


CCIL, at the prescribed cut-off time, rejects trades reported to it by members for settlement under the following conditions:

S/S-1 day prefunding is an option given to members to avoid trades being rejected on account of exposure violation. Amount in excess of Exposure limit can be prefunded by the member (i.e. transferring the USD funds to CCIL’s Nostro account, within the specified cut-off time, which will enable CCIL to enhance Exposure Limit of the member Bank for that settlement date).

I/O swap allows a member to cover a position in breach of its exposure limit by undertaking a swap trade for the same settlement date with another member. The USD buy leg of the deal for the member is reported and settled within CCIL thereby reducing the bank’s net sale position. The USD sell leg will have to be settled by the bank with the respective counterparty outside the CCIL system.  This approach will help ensure settlement of all inter-bank deals within CCIL by bringing about a reduction in banks’ settlement exposure.  It will also leave the members FX positions unchanged with a neutral exchange rate.  The choice whether to enter into such a swap or not is up to the bank and CCIL’s role here is  merely to facilitate the transaction by advising the interested bank the names of the banks who are willing to enter into a swap deal.

Is  Mark to Market (MTM) margin payable on forward trades?

Members are required to pay Mark to Market Margin on forward trades accepted for guaranteed settlement within the spot window and Cash/Tom/Spot trades which are at rates considered as outliers. Margins are payable on accepted forward trades entering the spot window in the USD/INR segment.

Members having net MTM loss for a value date will be required to pay margins in the form Cash/GOI Securities.

Banks that are members of CCIL’s Forex Forward Segment (FFS) are not liable to pay additional margins on trades accepted in the Forex Forward Segment as such margins are collected separately in the FFS segment. If such members have an MTM profit on trades accepted in the FFS segment for the value date, loss, if any, on trades accepted in the USD-INR segment will be offset against such gains.

A deal which has already been accepted by CCIL for settlement cannot be amended or cancelled by the members.

An unmatched deal can be unilaterally amended or cancelled by the member till S-1 Cut-off batch in case of Spot & Forward deals and Cut-off batch of S day in case of Cash & Tom deals.

A matched forward deal can be amended or cancelled provided the amendments and cancellations are received from both the counterparties before the exposure check is carried out.

How will a member do the reconciliation of deals settling through CCIL?


Banks can reconcile the status of their deals on T day itself, taking note of all Unmatched, Overexposed and Accepted deals the details of which are available in the Deal Status Report.

a) Accepted: Deals with status ‘Accepted’ are accepted for settlement. Hence the same can be treated as settled through CCIL.

Banks can reconcile their deals with reference to the deal status report for two values dates on any given day. Since the cut-off batch for spot and forward deals remains S-1 day, all unmatched spot and Forward deals on S-1 day will be rejected after the cut-off batch. Banks will have details of such deals in the Deal Status report generated in the cut-off batch.  Hence, Spot and Forward deals rejected on S-1 day and Cash and Tom on S day have to be settled outside CCIL, along with the rejected Spot and Forward deals which was carried to the Settlement day on account of exposure violation.

Members are required to pay settlement charges for every deal accepted for settlement. The charges payable by the member is volume based.

The following is the schedule of slab-wise fees and charges:

If the member delays the payment i.e. If the payment is made after 10th of a calendar month then member will have to pay 5 basis point per day on the amount of charges.

USD Shortage:  A member with a net USD payable position is said to have defaulted when it fails to credit part or the whole USD obligation to CCIL’s account maintained with the Settlement agent before the stipulated cut-off time on the value date. In such a case, CCIL will complete the US Dollar leg of the settlement by drawing the lines of credit which CCIL has with the settlement bank. On S+1 day, CCIL will debit the current account of the defaulting member with RBI with the INR funds received by that member on the S day from CCIL. The withheld funds will be released on receipt of dollar funds.

INR Shortage: In the event of INR shortage, CCIL will use the Rupee lines of credit and complete the settlement process and withhold corresponding dollar payout due to the defaulting Member.

The dollar funds will be released on receipt of INR Funds.

Default charges: CCIL shall impose penalty and LOC charges on the defaulting member.

LOC charges will be on the basis of actuals for both INR and USD defaults i.e. actual number of days LOC has been utilised.

Penalty on the default amount will be computed at 5% above the Bank rate for the number of business days of default.

If the Member Bank completely fails to replenish the default amount and the counter value withheld is insufficient to meet the default, CCIL may resort to Loss Allocation. Under this procedure CCIL will appropriate the SGF contribution of the defaulting Member prior to apportionment of residual settlement loss. Under the procedure, residual shortfall shall be recovered by apportioning the same among the Members who had to receive payment from the defaulting Member in proportion to their individual net exposure to the defaulting Member on the value date. The amounts subsequently received/recovered from the defaulting Member shall be apportioned amongst the Members who have contributed as per the said provisions.

Direct debit mandate (MT 204/MT 202R) is a message sent by a clearing house to a Swift member or a sub member, to instruct the receiver of the message to debit the account(s) of the third party specified in the message and to pay or credit the corresponding amount in favor of the sender of the message.

For e.g. CCIL sends a MT 204/MT 202R to XYZ bank which is the correspondent of ABC bank asking XYZ to debit the account of ABC and give the credit to CCIL’s account with its correspondent for a particular value date.

The main benefit of this message to the member banks is that they need not send a separate payment instructions (MT202) to their correspondent. CCIL on behalf of the member bank will send the payment instructions. The member banks will have to ensure that the account is funded.

Process Flow for Forex Clearing and Settlement:

Trades/Deals are received by CCIL from the Member Banks back office through File Routing System (FRS) in the form of IFN 300 (Annexure I). The connectivity between the Member banks back office and CCIL is via the INFINET.

Trades that are validated and matched online and are subjected to exposure check in batches. There are currently six batches being run during the day. The six batches in the sequence in which they are performed are as follows:

i) Pre-early  Morning Batch: Pre-early Morning batch run,  at 8.30 a.m. In this Batch, Net-position arising out of forward trades accepted in the Forex Forward Segment entering Spot window are subjected to an exposure check in the USD/INR segment.

ii) Morning Batches: There are two morning batches, run at 10:00 am (also called Early Morning batch) and at 12:00 noon (also called Morning Batch) for exposure check.

iii) Cut-off Batch: This batch is run at 12:30 noon. This is the cut-off time for receiving trades/deals from member banks for spot and forward trades to settle the next day, and for cash and tom trades to settle the same day. Spot/Forward Trades which are pending exposure on S-1 day would be carried forward till S day.  The banks have the option of pre-funding on S-1 day for the trades pending exposure. Banks can also undertake an In/Out Swap on a Cash & Tom basis, to enable the deals pending exposure to settle through CCIL. Spot & Forward deals which are lying unmatched for value next day (on S-1 day) and Cash & Tom deals for value same day (on S day) will be rejected at this batch. All trades which are in breach of exposure limit would be rejected in this batch on S day.

iv) Netting Batch: Besides the above batches, CCIL has a Netting Batch which is run at 1:00 p.m. on all working days for settlement of deals. The netting scheme adopted by CCIL is netting by novation where the bilateral relationship between the two participants/members will be substituted with bilateral contracts between each participant/member and CCIL. The system would compute member-wise netting of the payables and receivables, both for the Rupee and US Dollar leg of the transaction, and send out a Final Net position Report to each member at 1:30 p.m. for value S day and a Provisional Net position report for S-1 day.

The Members are advised of their net payable and net receivable in both currencies in the Final Net Position Report.

v) Afternoon batch: It is run at around 5.30 p.m. on all the working days. This batch performs exposure check for all trades received for Tom and Spot value.

vi) Evening Batch: It is run at about 7.30 p.m.It performs activities identical to Afternoon Batch.

The Member banks with a net debit (short) position in USD have to issue payment instructions to their correspondent bank for credit to CCIL account. The transfer of US Dollars to CCIL’s clearing account with its settlement bank, has to be routed through Fed wire and the payment should be credited to CCIL’s account by 10:30 p.m. IST (12:00 noon EST) on the settlement date. For members who have opted for MT204/MT 202R, CCIL will, on behalf of the member bank, send Direct Debit Message to Member’s Correspondent for the settlement obligation. 

For Rupee settlement, the Power of Attorney to CCIL given at the time of admission enables CCIL to debit or credit the member’s current account maintained with RBI. Members have to ensure that their rupee account is funded with the amount that is due from them for each value date.