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Home > FAQ > Risk Management > Forex Settlement
 
What is Net Debit Cap (NDC)?
What is Margin Factor?
What is Settlement Guarantee Fund (SGF)?
What is Exposure Limit (EL)?
How is Exposure Verification Done?
What is Temporary Enhancement to NDC?
Is there any impact of shortage in member’s account on Exposure Limit for such member?


What is Net Debit Cap (NDC)?


Net Debit Cap (NDC) is a limit upto which CCIL can take exposure on a member in terms of net US Dollar sale position of such member. NDC is fixed settlement date-wise and is fixed on the basis of certain parameters such as CPRA grading for the Member, as determined by an independent credit rating agency, Net worth etc.


What is Margin Factor?


CCIL sets the Margin Factor for each Member. Margin Factor comprises of two factors – credit risk factor, which is arrived at on the basis of the member’s CPRA gradings as determined by an independent credit rating agency and market risk factor, which is based on the Value-at-Risk for Rupee-US Dollar Exchange rate for a 3 days holding period. Market risk component of the margin factor is same for all members and set at 3 times of the Value-at-Risk for Rupee-US Dollar exchange rate (to take care of the market risk component for position for 3 settlement days for which processing happens simultaneously).


What is Settlement Guarantee Fund (SGF)?


For mitigating CCIL’s risk, members are required to contribute collateral to the Settlement Guarantee Fund in accordance with the policy laid down by CCIL from time to time. The SGF contribution for this segment is payable in US Dollar funds. Amount deposited by a member in SGF determines the Exposure Limit allowed to it by CCIL. CCIL invests these funds in short term US Government securities or keeps these as deposits with Settlement Bank or other overseas banks.


What is Exposure Limit (EL)?


Exposure Limit is a limit set in terms of US Dollars for each member in the Forex Segment up to which CCIL can take exposure on the member in terms of net US Dollar sale position by such member on settlement day. Exposure limit is computed from SGF contributed by the member and the Margin Factor allotted using the formula EL=SGF/Margin Factor, maximum equal to NDC. A member is not allowed to run a Net US Dollar Sold Position in excess of this Exposure Limit on any given settlement day, unless it has been allowed temporary enhancement to its NDC as per the process described hereunder.


How is Exposure Verification Done?


Exposure checks are done at the end of each batch separately for each settlement date within spot window except for the cut off batch where the process is restricted to check for only the corresponding settlement date for which the cut off batch is being run. Settlement date-wise net US Dollar sale positions are compared against member’s Exposure Limit (EL) and trades which may cause net US Dollar sale position of a member to exceed the Exposure Limit for the member is marked as having failed Exposure check. Trades which pass exposure checks are accepted for guaranteed settlement. Trades which fail to pass Exposure Check at the cut off batch are rejected by CCIL.


What is Temporary Enhancement to NDC?


When trades of a member for a settlement date fail Exposure Check, such member may seek temporary enhancement to NDC for such settlement date by an amount equal to the shortfall by making a pre-funding to the extent of 100% of such shortfall, as per the process detailed in CCIL’s Regulations for Forex segment. This will effectively results in CCIL’s temporarily increasing Exposure Limit for the member by such amount of temporary enhancement to NDC and accepting trades of the members for guaranteed settlement to the extent of enhanced Exposure Limit for the said settlement date.


Is there any impact of shortage in member’s account on Exposure Limit for such member?


In case of shortage of INR or US Dollar in a member’s account, Exposure Limits for the subsequent settlement dates (within spot window) are frozen to the level of utilised limits and no further trade of the member is allowed to pass through exposure check till the shortage persists. Exposure limits are normally reset to original levels after equivalent counter-value fund is withheld/received by CCIL and/or the shortage is replenished. If the shortage is actually not replenished by the day next to the date of shortage (after the restoration of limit subsequent to the shortage is allowed after the equivalent counter value fund is withheld by CCIL), Exposure Limits in the spot window are again frozen to utilised level and Exposure Limits for new dates are set to nil.


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