Risk Management Process
CCIL's risk exposure in the Triparty Repo settlement Segment emanates
mainly on two counts –
a. Risk of failure by a lender
to meet its obligations to make funds available or by a borrower to accept
funds by providing adequate security at the settlement of the original trade of
lending and borrowing under Triparty Repo transaction. .
b. Risk of default by a
borrower in repayment.
As the repayment of borrowing under Triparty Repo Settlement Segment is
guaranteed by CCIL, it should have enough security to meet any eventuality of a
default by the borrower. To take care of this risk, all borrowings are fully
collateralized. This process is managed through setting up of Borrowing Limits
for the members against their deposits of Government Securities as collaterals.
These collaterals are subjected to hair-cuts and are revalued daily at the end
of the day. Any shortfall in the value of collaterals (to cover outstanding
borrowings) is collected through margin calls. A Clearing Member is required to
maintain separate Borrowing Limits and Initial Margin Limits for each of its constituents.
All orders before placement are validated for adequacy of Initial Margin and
for Borrow Limits for borrow orders.
CCIL may be exposed to risks due to a member not honouring its
obligation from a trade received for settlement. A member may undertake to
either lend or borrow but may fail to honour such an obligation at the time of
settlement. As CCIL extends guarantee for settlement of all Tri party repo
transactions, to ensure that this risk is adequately taken care of, CCIL
collects Initial Margin and MTM Margin from the members in respect of their
deals for borrowing or lending under Triparty Repo transaction. As the risk on
any such deal continues up to the settlement of the deal, Initial Margin
collected on deals are released only on settlement of 1st leg
on such deals. MTM margin applicable on trades and due to valuation of
collateral is treated as incremental MTM margin payable at EOD. The same is
debited immediately at end of the day. In case of a resultant shortfall in
margin, members are required to contribute to Triparty Repo Collateral account
within stipulated time on the next business day. Failure to do so attracts