Rupee Derivatives: Risk Management Process
offers CCP services for trades in Interest Rate Swaps (IRS) and Forward Rate
Agreements (FRA) referenced to MIBOR, MIOIS, MIFOR and Modified MIFOR (MMFOR)
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 and MMFOR 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
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 Member Common
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 imposed.
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 available balance in the Member Common Collateral (MCC) pool. .
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:
also 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
are assigned tenor group-wise Single Order Limits (SOL) based on their short
term credit rating and Tier I capital / AUM / net worth. 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
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. In addition to meeting losses arising out of default by Member(s)
on its MIFOR portfolio, the MIFOR Default Fund will also be used for meeting
losses on the defaulter’s MMFOR portfolio
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.
Other than Settlement Shortage
Portfolio 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.
Portfolio referenced to MIFOR & MMFOR benchmark:
decision may be taken by the Clearing Corporation to close out all outstanding
trades of such member with its bilateral counter-parties.