22:59 May 20, 2019
CCILCCIL > FAQ > Risk Management > Securities Settlement

1. What is the initial margin?






What is the initial margin?


Initial Margin constitutes the margin obligation required to be fulfilled by a member as his contribution to SGF in relation to his outstanding trades so as to provide cover to the Clearing Corporation from the likely risk due to the future adverse movement of prices of the securities.



What is the mark to market margin?



Mark to Market Margin (MTM) constitutes the margin obligation required to be fulfilled by a member to cover the notional loss (i.e. the difference between the current market price and the contract price of the security) in respect of those outstanding trades which attract MTM margin.


3. What are the Margin Factors?

Margin Factors are the numbers expressed, security-wise, in percentage terms. These factors are used to determine Initial Margin requirement for the trades to be accepted for guaranteed settlement by CCIL. [Initial margin for a trade is computed by multiplying the total consideration for the trade by the Margin Factor applicable for the concerned security]. Margin Factors are arrived at for each security based on Value at Risk for three day holding period (at 99% confidence level) for such securities. For illiquid and Semi-liquid securities, Value at Risk numbers for such securities are stepped up by using appropriate multiplicants.


How is the exposure verification done at the End of the Day?

The exposure verification for a member is done on the following basis :

a. Outstanding trades at the time of exposure check are segregated and the trade considerations are totalled security-wise and settlement date-wise by allowing netting between buy trades and sell trades. During the process of netting, trading loss incurred by a member, if any, is arrived at using FIFO principle and is captured as Initial Margin. Profits on such netting are ignored.

b. Each security-wise settlement date-wise net consideration is multiplied by the margin factor applicable for the respective security to arrive at the margin requirement for the trades in the security which are due for settlement on such settlement day.

c. The security-wise settlement date-wise margins are then summed up to  arrive at the total initial margin requirement of a member.

d. Initial Margin is computed based on deal consideration till the trade is subjected to MTM margin. Thereafter, the computation of initial Margin is based on the value of the trade at MTM price.

e. Mark to Market margin (MTM margin) is applicable for the trades outstanding as at the end of the day and is applied at the end of the day (i.e. at the time of End of the Day Risk Valuation). No MTM margin is payable on first leg of Repo trades. Second leg of repo trades are however subjected to MTM margin immediately after the completion of netting of corresponding first leg for settlement. In case, any trade received from a member during the day is at a price which is considered as outlier, CCIL may impose Additional Initial Margin for the trade at the time of acceptance of such trade.

f. The total of Initial Margin, MTM Margin and Volatility Margin requirement in respect of the outstanding trades of a member is compared with the SGF contribution available for the member. If the total of the required margins is less than the member’s SGF contribution, then the member is within his exposure limit. On the other hand, if the total margin requirement is more than the SGF contribution, then the member has exceeded its exposure limit.


How is margining done for repo trades?

As in case of other trades, Initial Margin on a repo trade based on a security is computed by multiplying the total consideration by the Margin Factor applicable for the concerned security. The First Leg of the repo trade is considered for margining till the netting for settlement on its settlement date is over. As soon as the netting for settlement is over, the corresponding second leg of the trade is considered for margining.

An offset in margin is provided between two repo trades in opposite direction i.e. buy against sell or vice-versa, when the trades are in the same security and have same settlement dates for both legs of the trades. No offset is allowed between the first leg of a repo trade and an outright trade whereas such offset is allowed between the second leg of the trade and an outright trade in the same security and for the same settlement date.

No MTM margin is charged on 1st leg of Repo trades unless the trade has been identified as having done at an off market price. MTM margin on second leg of repo trades is applied immediately after completion of the netting for settlement of the corresponding first leg of repo trades. The MTM margin so computed will be based on the last available MTM prices. At the end of the day, such MTM margin is re-computed based on day-end MTM prices.


What is CCIL’s Value at Risk methodology?

Value at Risk (VaR) is computed security-wise using historical simulation method. For computing VaR, Zero Coupon Yield Curve (NSS) data for the past 1000 days  is used. CCIL may set the VaR for illiquid securities by adding appropriate illiquidity weights to such numbers.



Can I get an idea about my initial margin requirement?

The requirements for initial margin vary significantly depending on the nature of securities traded. It depends on the residual maturity of the traded security and is usually higher for securities having higher residual maturity. To assist the members to find out their margin requirement for their trades in Government Securities and also to do 'what if' analysis regarding margin requirement and SGF contribution, CCIL has made available a web based "Online Margin Calculator" for Securities Segment as a part of its "Integrated Risk Information System". The system can be accessed on the URL https://iris.ccilindia.com.


What is "Integrated Risk Information System"? How does it help me in monitoring the margins requirements?

“Integrated Risk Information System (IRIS)” is a web-based information system, which  provides CCIL’s members with all information pertaining to their trades, margins & collateral, settlement status etc.. This web- based utility helps its users to access their trade and margin details on a real time basis where data is refreshed in less than 5 sec. Trades executed on any of the trading systems or reported to reporting platforms is processed & displayed in a systematic manner in the application.

In addition, it assists members to:
a) Keep track of their outstanding trade positions.

b) Keep track of their intra-day deposits / withdrawals of cash/securities in their SGF account, if any

c) Keep track of notional MTM credits received from other segments.

The system can be accessed on the URL https://iris.ccilindia.com. To avail this facility members have to send a request to irms@ccilindia.co.in



Can I get an idea about Mark to Market margin requirement?


Outright trades falling due for settlement beyond T+0 day and Repo trades would attract Mark to Market margin (MTM Margin). This margin is computed only for the members holding adverse positions (i.e. notional loss positions) and is computed for security-wise settlement date-wise group of trades. Amount of MTM Margin therefore depends on the actual change in market price of the concerned security(ies). MTM gains on trades in liquid/semi-liquid GOI securities and T-Bills is now allowed to set off against MTM losses on trades in any security provided that the settlement of such trades with MTM gains takes place on or after the settlement date of trades with MTM losses.



What is Incremental MTM Margin?

Incremental MTM Margin is the sum of MTM Margin applicable on the new trades received during the day and the increase in MTM Margin during the day in respect of the trades carried over from the previous day. However, MTM Margin representing trading loss arrived at during the time of netting of trades, Additional Initial Margin collected on trades done at off-market prices and MTM Margin on 2nd leg of Repo trades do not qualify for being treated as Incremental MTM Margin. Incremental MTM margin is debited immediately on assessment of the same at the end of the day and in case of a resultant shortfall in margin, members are required to fund their margin account within stipulated time on the next business day. Failure to do so attracts penalty.



What is Intraday MTM Margin and how it is imposed?




Sudden volatility in interest rates / bond prices during the day may substantially erode the Initial margins collected from the members. CCIL therefore, revalues all the outstanding trades of the members at 12.00 noon & 3.00 PM using the latest available MTM prices. Collaterals are also revalued using the latest intra-day MTM prices.  Net MTM loss in the portfolio of a member will be sum of net MTM value depletion on outstanding trades and reduction in value of collaterals under charge, if any.  If the net MTM Loss arrived at as above exceeds a percent (as notified from time to time) of the sum of the haircut value of collateral under charge and the initial margin and volatility Margin (if applicable) collected,  such net MTM loss will be the Intra-day MTM margin payable by the member.


When does my margins get released ?

After the netting for settlement is completed, the margins due for trades settling on the day will be arrived at by deducting margin obligations of the trades due for settlement on subsequent days from the total margin collected. Thereafter, as the settlement proceeds in stages, margins for trades settling on the day will be re-worked by taking outstanding settlement obligations into account and margin in excess of requirement will be released.


Whether the deals beyond the exposure limit are accepted?

At present, trades that fall beyond concerned members’ risk exposure limits are accepted without guarantee (vis-à-vis such members) for settlement by the Clearing Corporation. Trades once accepted without guarantee would qualify for guaranteed settlement only upon receipt of additional contributions to the concerned member’s SGF to cover the shortfall at the time of breach in exposure limit. The members can make intra-day deposit of cash and securities into their Settlement Guarantee Fund towards expected intra-day margin shortfall which are accounted for by CCIL on receipt of such deposit. The securities are valued based on last available Mark to Market (MTM) prices of CCIL and then are adjusted for hair-cut.


What is Settlement Guarantee Fund?


Settlement Guarantee Fund (SGF) is a fund to which contributions are made by the members to meet the margin requirements of Securities Segment. The members’ contribution to the Funds is in the form of cash and securities with cash being not less than 10% of the total margin requirement.

The Margin provided in SGF for Securities Segment can also be used for meeting margin requirements in other segments like Forex USD-INR Settlement Segment, Forex Forward, CLS and Rupee derivatives.





What are eligible securities (for contribution into SGF)?


Eligible Securities are Central Government Securities and Treasury Bills listed as such by CCIL through notification. CCIL accepts deposits in these securities into SGF from the members. These listed securities are usually liquid securities and the list is reviewed periodically. Inclusion / exclusion of any security to / from the list is notified to the members. On exclusion of a security from the list, a member having deposits in such security is expected to withdraw from SGF such security before the announced dated of exclusion; else, the value of the holding in the security is treated as nil.




Can a security deposited by a member into its SGF be withdrawn?


Any security deposited by a member can be withdrawn after giving notice as required as per CCIL Regulations for the Securities Segment, as long as the value of the remaining balance in its SGF is adequate to take care of its margin requirement.





What is CCIL’s Valuation Methodology for valuing Government Securities?


CCIL’s valuation methodology gives primacy to the traded prices. The price of last trade (of face value Rs.5 crores and above) of the day reported / matched on NDS-OM will be taken as MTM price. If in the opinion of CCIL, the last trade doesn’t reflect the fair market price of the security, CCIL may change the price to weighted average price for each such security. For arriving at weighted average price, last five outright trades of the last day in the security (or of all trades, if number of trades is less than five) are only taken into consideration. Trades of face value of below Rs. 5 cores, market outliers & constituent trades are ignored for this purpose.


In case there is no outright non-constituent trade of face value Rs.5 Crores and above in a security or if, in the opinion of CCIL, none of the trades in the security reflect the prevailing market price of the security, the security will be treated as not traded on the day. On such days, Mark to Market price for such security will be based on the Internal Valuation Model of Clearing Corporation.


CCIL’s Model Prices for Central Government Securities and T-Bills are worked out at the end of each trading day using Nelson-Siegel-Svensson Zero Coupon Yield Curve generated from the data on trades in Central Government Securities and T-Bills done by market participants during the day. Adjustment is made for liquidity / illiquidity premium / discount.




What is Default Fund and how the contribution of the member is computed?


Default Fund in respect of its Securities Segment has been set up with a view to meeting losses arising out of any default by the members of this segment in discharging their obligations.


Default Fund quantum is based on the highest stress loss observed in the preceding six months and is reviewed at end of every month, or on such days when stress loss for the day exceeds 95% of pre-funded default handling resources. The member’s contribution to the DF is determined with reference to the total size of the fund and is based on the average outstanding gross trade volume of the member and the average IM contribution during the previous month, with equal weights assigned to each.


If the value of the securities net of haircuts falls below a threshold level as notified by Clearing Corporation from time to time, members shall be required to contribute such additional sums to the Default Fund as may be necessary.


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