Rupee Derivatives: Risk Management Process
extends guaranteed settlement of trades in Interest Rate Swaps (IRS) and
Forward Rate Agreements (FRA) referenced to MIBOR, MIOIS and MIFOR benchmarks.
IRS & FRA trades having residual maturity up to 10 years (for trades
referenced to MIBOR and MIOIS benchmark) and IRS trades having residual
maturity up to 5 years (for trades referenced to MIFOR benchmark) are eligible
for guaranteed settlement. The risk
associated with this segment is market risk and the same is sought to be
covered by collection of margins. IRS & FRA trades are subjected to
exposure checks for adequacy of margins for both the counterparties to the
trade, on a trade by trade basis before those are accepted by CCIL.
check is online, both for trades concluded on the ASTROID trading system as
well as for reported trades. On-line acceptance status of trades is made
available to the members through CCIL’s Integrated Risk Information System
(IRIS). CCIL seeks to cover its risk through prescription of Initial margin
(including spread margin), mark to market margin, volatility margin and
The Initial Margin (IM) on the outstanding trades of the Members is collected based on
Portfolio Value at Risk model (PVaR). It is supplemented by collection of spread
margin. Based on the Short-term credit ratings of the members, CCIL has
prescribed different levels of initial margins for different members. Minimum
Initial margin is collected in case the margin value as per PVaR model
is lower due to lower volatility in swap rates. Initial margin is released
after the settlement of the trade.
Mark to Market Margin (MTM) constitutes the margin obligation required to be fulfilled by a member
to cover the notional loss, if any, in the outstanding trades portfolio due to
movement of swap rates. Marking to market of outstanding trades is carried out
at the end of the day. The implied zero rates are arrived at from the swap
rates using bootstrapping. All trades of a member on a benchmark are re-valued
using these implied zero rates for the benchmark and the net value is taken as
MTM value of the portfolio of outstanding trades of the member. For such
valuation, value of floating leg cash flows are estimated using the forward
rates arrived at from the zero rates as above. If the aggregate of MTM values
of all trades for a member shows MTM loss, such amount is collected as MTM
margin from the member. The portion of the MTM Margin attributable to the cash
flow settling on any business day is released on successful settlement of the
same. There is also a provision for collection of Intra-day MTM margin. If
MTM loss on outstanding trade portfolio of a member, computed using Intra-day
MTM rates is beyond a threshold as notified from time to time, intra-day MTM
margin is collected.
If the MTM
value for a member results in a gain to the member, then the member’s margin
account is credited with the MTM gain amount (net after applying a haircut on
such MTM gain) and the same is allowed to be treated as margin made available
by the member. Such margin made available can be used against margin
requirements in any other segment which draws margins from Securities Segment
In case of
a sudden increase in volatility in the market, Volatility Margin (VM) is
imposed by CCIL at a rate notified to the members. On imposition of VM, Initial
Margin requirement effectively increases by the same percentage at which VM was
with significant exposure in this segment may be called upon to pay Concentration
margins viz. IM, VM, CM and MTM for Rupee Derivatives segment are blocked from
the unutilized portion of the SGF deposited by such member for Securities
will be provided for any margins viz, IM, VM, CM and MTM across different
benchmarks for the members. Moreover, no margin offsets are permitted between
constituents or between a constituent and its Clearing Member
Risk Management in Trading System:
offers CCP clearing to trades concluded on the ASTROID trading platform of the
Clearcorp Dealing Systems (India) Ltd. (Clearcorp), a wholly owned subsidiary
of CCIL. Exposure check of these trades is also carried out on online basis. A
factor based margin is immediately blocked for a trade done in trading system.
Once the portfolio margin has been re-computed after including the new trade in
the portfolio, the factor based margin collected earlier is suitably adjusted.
are assigned tenor group-wise Single Order Limits (SOL) based on their short
term credit rating and Tier I capital. Out of the total margin made available
for this segment, a member has to allocate a certain minimum amount of margin
to the trading system at the beginning of every day. This margin is also used
for meeting margin requirements for the reported trades.
if, at any point in time, the margin requirement for a member exceeds the
margin made available, the trading system enters into a Risk reduction mode
where the member is allowed to put only those trades which will result in
Default Fund: Two separate Default Funds (MIBOR &
MIOIS-Default Fund and MIFOR-Default Fund) are in place for the segment for
meeting any residual risks arising out of default by a member.
handling procedure for the segment will be as under:
shortage in meeting daily settlement obligation in this segment shall, unless
replenished by the Member by 11.00 A.M. on the next day (by 10.30 A.M. if the
next day is a working Saturday), be treated as a Default by the Member.
meeting such shortage, Clearing Corporation shall have the authority to sell
the securities placed by the Member as margin deposit. Such sale could be made
either through NDS-OM or Over the Counter or sale through private arrangement
as decided by Clearing Corporation.
than Settlement Shortage
referenced to MIBOR & MIOIS benchmark:
Clearing Corporation shall on declaration of default transfer the defaulting
Member’s proprietary positions to one or more non-defaulting Members by way of
a sale (including an auction) or through an allocation mechanism.
referenced to MIFOR benchmark:
may be taken by the Clearing Corporation to close out all outstanding trades of
such member with its bilateral counter-parties.