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| 1. |
What is initial margin?
Initial margin constitutes the margin obligation required to be fulfilled by a Member in respect of its matched deals in CBLO segment. Members are to deposit initial margin in the form of cash, in advance, before putting up any bid or before accepting any offer. In the auction market, only lenders are required to provide Initial Margin whereas in the secondary market, all members are required to provide Initial Margin on their CBLO wise net trade positions.
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| 2. |
How is Initial Margin computed?
Initial margin is presently computed @ 0.50% of the face value of the concerned CBLOs. While arising at the net outstanding contracts for each CBLO, offset is allowed on FIFO basis and if there is any loss due to such offset, CCIL may, upon notification, treat such loss as Initial Margin before allowing such offset. The rate of 0.50% which is known by ‘Margin Factor’ is presently uniform for CBLOs of all maturities. The rate can be changed by CCIL by using suitable notification and it can be different for CBLOs having different maturities or for separate class of members.
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| 3. |
What is borrowing limit?
Borrowing limit is a limit given to a member to enable it to borrow funds from CBLO market.
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| 4. |
How is borrowing limit computed?
The eligible securities deposited by a member as collateral towards allocation of borrowing limit in CBLO segment is subjected to a valuation exercise at the end of each business day. The valuation is carried out using CCIL’s mark-to-mark price for such securities. Aggregate value of securities contributed by a member, net of haircut, rounded downwards to the nearest rupee is set as permissible borrowing limit for such member.
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| 5. |
What is utilization of borrowing limit?
Borrowing in CBLO segment results in utilisation of borrowing limit. The utilised portion of the borrowing limit of a member at the end of a day would be equal to the aggregate face value of the outstanding CBLO borrowings in the account of such member. During the day, orders placed in the auction market are also treated as utilisation. Securities covering the face value of the outstanding CBLO borrowings are blocked in the member’s account as security for the borrowing.
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| 6. |
How is hair-cut determined?
The market value of a security, offered as collateral, may depreciate before realisation due to rise in interest rates. To take care of the possibility of such reduction in value, hair-cut is imposed by CCIL. As prices of all securities do not change to the same extent for an equal change in interest rate, hair-cut rate is security specific, based on Value at Risk for the security for a 5 day holding period, which is multiplied by a Multiplicant based on the securitys liquidity during the previous quarter. A security which is highly liquid will have a Multiplicant of 1, a semi-liquid security has a Multiplicant of 1.5 and an illiquid security has 2 as its Multiplicant.
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| 7. |
Are all securities accepted as collateral for computation of borrowing limit?
All Central Government securities and Treasury bills are accepted as collateral for borrowing limit. CCIL prescribes a list of such securities periodically that are eligible for contributions by members. Securities may be taken out of the list as those reach closer to maturity.
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| 8. |
When can a security, deposited as collateral, be withdrawn by a member?
Securities in excess of the required collateral for CBLO borrowings can be withdrawn anytime by a member after giving required notice as per the Regulations applicable for CBLO segment.
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| 9. |
Is a security, offered as collateral for borrowing in CBLO market, considered for SLR purpose?
As per clarification received from Reserve Bank of India, out of the total amount of securities lodged in the CSGL account with CCIL, only such portion of the security which is adequate to cover the borrowing of a member in CBLO segment (i.e. encumbered securities) would not be considered for SLR purposes. Remaining securities could be considered for SLR purposes. CCIL makes available a memberwise report, “Status of collateral Deposits”, as at the end of each day to clearly indicate the securities which are non-encumbered and hence, can be counted for SLR purposes.
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