Services

CCIL has introduced CCP Clearing and settlement services for Forex Options (USD/ INR) with maturities of up to one year. The primary risk in this segment is market risk, which is magnified by the leverage inherent in options structure. The risk management relating to FX Options segment provides for collection of margins based on the outstanding accepted trade positions of the members/constituents in this segment. 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. 

Exposure check is online, for both, trades concluded on the Fx Options Dealing system (OPTIX) and OTC trades reported to CCIL. On-line acceptance status of trades is made available to the members through CCIL’s Trade Repository (TR). 

CCIL seeks to cover its risk through prescription of Initial margin (including Calendar Spread margin and Short Option margin), Net Options Value (NOV) margin, Mark to Market margin, Volatility margin and Concentration margin. In terms of the provisions of Chapter VI of the Regulations of the FX Options Segment, proprietary trades of a clearing member and the trades of each of its constituents are considered separately for margining. No offset in margining is permitted between a clearing member and its constituents or between different constituents of a clearing member. Where a constituent avails services of multiple clearing members, its portfolio of trades cleared through each such clearing member are considered separately for margining, with no offsets being permitted between them. 

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 Calendar Spread margin. Based on the Counterparty Risk Assessment (CPRA) grade assigned to the members, CCIL has prescribed different levels of initial margin for members under each such grade. Provision is also available to step-up the margin requirement for individual members on account of adverse development / regulatory action. Short Options Minimum margin is collected and acts as a minimum floor for portfolios containing short option positions. Initial margin on option trades is released on option exercise / expiry. Initial Margin on spot trade resultant from option exercise and forward trades is released on trade acceptance in Forex settlement segment (Spot window). 

Net Options Value (NOV) is computed as the sum of the values of all long option positions less the sum of the values of all short option positions in a portfolio at the time of acceptance (clearing) of each option trade and on an end-of-the-day (EOD) basis. Negative NOV is collected as NOV Margin while positive NOV reduced by a prescribed haircut (5%) is given as a notional credit to the Member’s Member Common Collateral (MCC) account and the same is allowed to be treated as Margin Made Available.

Mark to Market Margin (on Forward and Spot portfolio) 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 trade), if any, in the outstanding trade (hedge forward and spot) portfolio due to movement of various market risk factors such as spot rate, forward premia and interest rate. Marking to market of outstanding trades is carried out at the end of the day. If the aggregate of MTM values of all trades shows MTM loss, such amount will be collected as MTM margin from a member. If the aggregate MTM value for a member result 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 Collateral (MCC) pool. There is also a provision for collection of Intra-day margin. Based on intraday market rates if for a member the incremental MTM loss (NOV + MTM Forwards) in value of cleared portfolio exceeds 30% (parameterised value currently) of sum of Initial margin, Volatility margin and Concentration Margin, such incremental loss will be collected as additional margin / gain reduction from margin account of member.

Net Premium amount (across all buy and sell option transactions) payable by a member is the Net Premium Margin collected from the member. The premium margin is collected at the time of trade being accepted for CCP Clearing and Settlement and is released on the successful settlement of premium obligation. If the net premium amount (across all buy and sell option transactions) is receivable for a Member, then such amount shall be given as a credit to the Member’s Member Common Collateral (MCC) account.

In case of increase in volatility in USD/INR exchange rates, 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. 

Members with significant exposure in this segment may be called upon to pay Concentration Margin (CM). Concentration Margin is collected as percentage (as notified) of Initial Margin. The margins for FX Options segment are blocked from available balance in MCC pool. It shall be the responsibility of the member/ clearing member to maintain adequate balance in MCC pool to fulfil the margin obligation on its own / its constituent's portfolio within the stipulated timelines to avoid penal charges. 

Option exercise / expiry: On the day of expiry, exercised option trades will result in creation of a USD INR spot trade. The resultant spot trade along with the forward trades with value date of S-2 days along with the corresponding margins from the Forex options segment are transferred to the USD INR Forex Settlement segment. Hence, margins on both exercised and expired option trades are released on the expiry date.

Risk Management in Trading System: CCIL also offers CCP clearing to trades concluded on the FX Options trading platform of the Clearcorp Dealing Systems (India) Ltd. Members are assigned Single Order Limits (SOL) based on their CPRA grade and Tier I capital. Out of the total margin made available in Member Common Collateral (MCC) pool, a member is required to allocate a certain minimum amount of margin for trading system trades at the beginning of the day. This prescribed margin is maintained throughout the trading hours and is released back as free margin in MCC pool on session closure. This prescribed margin is also used for meeting margin requirements for the reported trades.

A dedicated Default Fund is in place for the segment for meeting tail risks arising out of default by a member. Quantum of Default fund is proportionately allocated amongst direct members of the segment based on ratio of members’ (including their constituents, if any) average initial margin requirement, average position outstanding and highest stress loss, during the previous six month period. 

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/ tear up mechanism.