1. Which trades are accepted for guaranteed settlement in Rupee Derivatives segment?
2. What are the types of Margins collected in Rupee Derivatives Segment?
3. What is Initial Margin (IM)?
4. How is Initial margin computed?
5. What is Minimum Initial Margin?
6. How is MTM margin computed?
7. What is Incremental MTM margin?
8. How is Intraday-MTM margin applied?
9. What is Volatility margin and when it is applicable (VM)?
10. What is Concentration Margin and when it is applicable?
11. What are Replenishment and Rejection levels?
12. What is Margin Credit?
13. When are the margins released?
14. What happens when trades with MTM gain are settled?
15. What is Crystallized Settlement obligation (CSO)?
16. How margining and acceptance of online trades from ASTROID trading platform takes place?
17. What is Single Order Limit (SOL)?
18. What is Default Fund?
19. How is Default fund Size/Quantum arrived?
20. How is a member’s contribution to default fund determined?
21. How the Defaults are handled?
1. | Which trades are accepted for guaranteed settlement in Rupee Derivatives segment?
Interest Rate Swaps (IRS) & Forward Rate Agreements (FRA) trades of residual maturity up to 10 years referenced to MIBOR & MIOIS benchmarks and Interest Rate Swaps (IRS) trades of residual maturity up to 5 years referenced to MIFOR & MMFOR benchmark are eligible to be accepted for guaranteed settlement in this segment. Actual acceptance by CCIL happens if both the members have adequate margins to meet their margin requirements. |
CCIL uses volatility weighted Historical simulation based Value at Risk (VaR) for initial margin computation. VaR is computed at 99% confidence level over a 5 day Margin period of Risk (MPOR) based on Historical series of 1000 days returns comprising of a) 750 consecutive recent returns & b) 250 consecutive returns from period representing highest stress in market over the last 10 years. There is a spread margin component to take care of the possible impact due to un-expected twist in the Swap rate curve. Initial margins for relatively weaker members are stepped up by 50% to 100% based on the Short-term credit ratings of the members. Initial Margin for particular member may also be stepped up in case of adverse market report or regulatory action etc. In the case of margining of client trades, step up factor applicable (if any) to its clearing member would be applicable to the client also.
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5. |
What is Minimum Initial Margin?
The Initial margin based on VaR computed using
Volatility weighted Historical simulation may be low in the period of low
volatility in exchange rates. To guard against the impact of sudden increase in
volatility, Initial margin is not allowed to fall below a minimum level.
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6. How is MTM Margin computed?
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.
The implied zero curve is arrived at from the
swap curve using bootstrapping. All trades of a member on a benchmark are
re-valued using implied swap zero curve for the benchmark and the net value is
taken as MTM value of the portfolio of outstanding trades of the member. For
such valuation, floating leg cash flows are arrived at using the forward rates
estimated from the zero rates as above. If the aggregate of MTM values of all
trades shows MTM loss, such amount will be collected as MTM margin from a
member.
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7. |
What is Incremental MTM margin?
Increase in MTM Margin on a day over the MTM margin on
the previous day is termed as Incremental MTM margin. MTM margin is imposed at
the time of end of the day risk valuation and becomes payable on next day
before the stipulated time.
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8. How is Intra-day MTM margin applied?
MTM Margin on IRS/FRA
trades is computed on daily basis at a stipulated time using intra-day MTM
rates. In case there is an increase in MTM margin beyond a threshold as
notified from time to time, additional margin is collected as intra-day MTM
margin.
9. What is Volatility Margin and when it is applicable?
In
case of sudden increase in volatility in interest rates, Volatility Margin is
imposed by Clearing Corporation. In case of any margin shortfall on account of
such volatility margin imposition, members get an hour’s time to replenish the
shortage i.e. if the shortage is replenished within one hour’s time; no penalty
is imposed for such margin shortfall.
10. What is Concentration Margin and when it is applicable?
Concentration margin is levied on participants having significant exposure in the segment. It is charged as a percentage of Initial Margin. Concentration Margin shall be applicable separately for portfolio of IRS trades referenced to MIBOR/MIOIS benchmark and portfolio of IRS trades referenced to MIFOR/MMFOR benchmark.
Concentration margin is levied on the member/s for whom either or both of the below conditions are met:
a) Initial Margin (IM) requirement breaches the “IM Threshold for CM imposition” or/ &
b) Gross trade position* breaches the “Position Threshold for CM imposition”.
Concentration Margin is levied in two stages on breach of thresholds set as under:
i. First level of threshold set at 8% of respective average values of Initial Margin and gross trade position during previous month , computed across all members in the segment referenced to particular benchmark ( separately for MIBOR/MIOIS & MIFOR/MMFOR benchmark). Concentration margin is imposed at 15% of applicable Initial Margin on breach of First Level Threshold/s.
ii. Second level of threshold set at 15% of respective average values of Initial Margin and gross during previous month, computed across all members in the segment referenced to particular benchmark (separately for MIBOR/MIOIS & MIFOR/MMFOR benchmark). Concentration margin is imposed at 20% of applicable Initial Margin on breach of Second Level Threshold/s.
Withdrawal: Concentration Margin, in place for member/s, is withdrawn (partially/fully) once the Initial Margin obligation and/ or gross notional in breach, falls below the respective pre-determined thresholds (average IM and average gross trade position as stated above) as under:
i. Level 2 threshold set at 13% for partial withdrawal
ii. Level 1 threshold set at 6% for complete withdrawal.
Margin Shortfall (if any) on account of imposition of concentration margin, is to be replenished in an hour’s time to avoid penal charges.
*Gross trade position of participant for the purpose = Aggregate of “Notional Value of all trades of member referenced to a particular benchmark”
11. What are Replenishment and Rejection levels?
Members are required to replenish margins when
the utilisation of available margin has reached such percentage as notified
from time to time. This level is termed as replenishment level.
Rejection level is such percentage of
utilization of available margin, beyond which CCIL would not accept any new
trade for guaranteed settlement
12. What is Margin Credit?
If the net MTM value of all
accepted trades of a member is positive (i.e. gain), then such value, subject to a haircut is allowed
as notional credit to the member for meeting its margin requirements in any
segment which draws margins from Securities Segment SGF. This amount is termed
as “Margin Credit”.
Initial Margin and Mark to
Market margin attributable to a trade are released on maturity of the trade.
MTM margin or part thereof may also be released at the time of settlement of
individual cash flows.
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14. What happens when trades with MTM gain are settled?
MTM gain (or part thereof)
from a IRS/FRA trade which is available as margin credit to the member gets
withdrawn on settlement of cash flows / maturity of such trade. If a member had
utilized such credit against any other margin requirement, there could be a
margin shortfall when such credit is withdrawn. In such cases, CCIL holds back
the settlement proceeds to the extent of shortfall. Amount held back is
released on replenishment of margin by the member.
15. What is Crystallized Settlement obligation (CSO)?
Discounted value of any
amount determined as payable or receivable by the Member due to early
termination is termed as Crystallized Settlement Obligation. Crystallized
Settlement Obligation payable by a member is treated akin to margin liability
of the member. The Crystallized Settlement Obligation receivable by a member,
on the other hand, is treated like a margin credit available to the member.
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16. How margining and acceptance of online trades from ASTROID trading platform take place?
IRS trades concluded on ASTROID trading platform are accepted in
Rupee Derivatives segment for guaranteed settlement. Margins are computed on
these trades on post trade basis.
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 orders which if matched, would
result in margin reduction. Once the margin requirement falls below the margin
made available, the member comes out of Risk Reduction mode.
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17. What is Single Order Limit?
Margins for IRS trades done
on ASTROID Trading Platform are checked on a post trade basis. In order to
minimize the risk from such trades being accepted without adequate margin,
Single Order Limits (SOLs) are set for the members. SOLs are reviewed periodically
(half-yearly).
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18. What is Default Fund? Two separate default funds are in place for Rupee Derivatives Segment for meeting any residual risks arising out of any default by the members of this segment. MIBOR & MIOIS-Default Fund and MIFOR-Default Fund, referenced to transactions in respective benchmarks, will be maintained with a view to meet losses arising out of default by Member(s) of this segment. 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. Each member is required to contribute to the default fund in the form of cash and / or eligible Government Securities. |
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The Quantum of Default fund
is arrived at on the basis of Stress tests conducted on the outstanding trade
portfolios of the members. The amount is reviewed on monthly basis (or on day
when stress loss exceeds prevailing default fund for the segment) or at such
frequency as decided by CCIL from time to time.
20. How is a member’s contribution to default fund determined?
For each default fund, a member's contribution to the default fund is determined based on 1) Average of (a) outstanding gross trade positions and (b) Initial margin contributions and 2) Highest of its Stress Loss, during preceding six months period using trades referenced to the respective benchmarks, with 50:25:25 as weights for these components, respectively. The minimum contribution for a member is Rs.1 Crore in case of MIBOR and MIOIS Default Fund and Rs.10 lacs in case of MIFOR Default Fund. For MIFOR Default Fund, while computing the average outstanding gross trade positions, average Initial Margin and highest stress loss, members’s MIFOR and MMFOR portfolio will be considered. In case a particular member is acting as clearing member, then average computation above and highest stress loss for clearing member will be the aggregate of such values on his proprietary account and of all its constituents.
21. How the Defaults are handled?
A) Settlement Shortage
Any 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.
For 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.
B) Other than Settlement Shortage
i) Portfolio referenced to MIBOR & MIOIS benchmark:
The 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.
ii) Portfolio referenced to MIFOR & MMFOR benchmark:
A decision may be taken by the Clearing Corporation to close out all outstanding trades of such member with its bilateral counter-parties.
In the event of Insolvency : In case of insolvency of a member, a decision may be taken by the Clearing Corporation to close out all outstanding IRS/FRA trades of such member