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22-july-2003
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TABLE OF CONTENTS
1
MARGIN LIMITS.....................................................................................................2
5.1
VALIDATIONS FOR MARGIN LIMITS.......................................................................2
5.2
COMPONENTS OF MARGIN LIMITS.........................................................................2
5.2.1
Portfolio based Margin.................................................................................3
5.2.2
Net buy Premium...........................................................................................5
5.2.3
Realised loss..................................................................................................6
5.2.4
Exposure limit................................................................................................7
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For the purpose of risk management, deposits are defined for the user and multipliers
assigned to the deposits in order to arrive at the limits. The following limits are defined
for risk management:
Intraday Turnover Limits
SO Limits (only for clients)
MtM Limits
Margin Limits
For an order entered, the above limits are computed and validated against the max limit
available. If any of the limits are violated, the order will not be sent to the exchange by
the NeatXS server.
The validations for Intraday turnover, MtM and Margin limits happen at the following
levels: PRO / Client, TWS and branch. The validation for Short Option Limit happens
only for Clients.
Intraday turnover is computed for the days transactions at order level. This limit is
computed as qty * price for all futures and buy options orders and as qty * strike price for
sell option orders. The Intraday turnover is computed for every order and checked with
the maximum available Intraday turnover for the client / PRO and TWS and Branch. If
the used exceeds the max as a result of the new order, the order is rejected.
Intraday turnover is computed as validated as the following levels: PRO / Client, TWS,
Branch
The Short Option (SO) limits are applicable for Clients only. This limit is computed only
for net sell options positions and open sell option orders. Cover benefit is provided for
sell orders if there is a corresponding buy trade. This value is computed as qty * strike
price. The short option value so computed for all outstanding sell orders and position is
validated against the maximum short option limit set for the client. If the used SO limit is
greater than the maximum SO limit as a result of the new order, the order gets rejected.
SO limits are also computed for outstanding positions.
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MtM limit is computed on every trade and is a combination of realised Profit / loss and
notional loss. Notional Profit is ignored for MtM computation. Notional loss is incurred
when the buy price is greater than the current market price or when sell price is less than
current market price. Realised loss is incurred if the sell average price is less than the buy
average price. Computation of MtM occurs on the outstanding position as well as the
days position.
Margin Limits
Margin requirement for F&O segment is based on portfolio margining system similar to
the Exchange, with the addition that margin is computed in NeatXS system on an order
Level. Since margin computation is on a portfolio level, as soon as a new order request
enters the system the portfolio is generated/modified, margin is computed and compared
with the maximum available margin.
Qty
+15000
-15000
Individual Margin
Rs.50000
Rs.60000
Due to inter-commodities set off, the portfolio margin is say, Rs.80,000. Now if Client A
wants to close position in FUTSTK ACC by selling 15000 contracts, the margin required
for the portfolio may be greater than Rs. 1.00 lac say Rs.1,20,000. Since it exceeds the
open margin limit of 1,00,000, the order should get rejected. However, since this is a
cover order (order to close an existing position), the value will be compared with the
closing margin limit and the order will be accepted.
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Whenever the User performs any Order or Trade related activity (i.e. entry, modification,
and cancellation), Portfolio gets generated/modified for the trades and orders of the
client. This Portfolio is sent to the Margin Calculator for calculating the margin using the
Risk parameter file received from Exchange on a daily basis.
If the client/proprietary position consists of simple portfolio with no off-setting contracts
in futures and options of the same underlying asset it will work like exposure margin.
If the client / proprietary position consist of portfolio of off setting contracts in futures
and options of the same underlying asset it will give maximum set off for the same
contract and the balance set off to the extent possible for other positions in the same
underlying.
Example for calendar spread
If Client A has net buy NIFTY February futures position of 400 units and sell NIFTY
March futures position of 400 units, portfolio margin computation will give a full set off
and calculate only spread margin.
The margin is computed:
(a)For traded position give portfolio based set off for contracts having the same
underlying asset
(b)For square off orders, set off to the extent of square off will be given while computing
margin
(c ) For other orders margin will be collected as a separate position till it is traded
Example
Portfolio1
This example is based on SPAN parameter file of 5th February 2002
Order/Trade
BUY/SELL
Contract
Contract
Quantity
detail
Descriptor
Trade
Buy
Futures
FUTIDX
on Nifty NIFTY
Feb
28Feb2002
expiry
200
SPAN based
Margin
for
single
position (Rs.)
11014.00
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Trade
Sell
Trade
Buy
Trade
Sell
Futures
on Nifty
March
expiry
Reliance
petro
February
futures
Reliance
petro
March
Futures
FUTIDX
NIFTY
28Mar2002
200
10834.00
FUTSTK
Relpetro
28feb2002
1000
6060.00
FUTSTK
Relpetro
28mar2002
1000
6080.00
Combined Portfolio based margin for portfolio 1 will be Rs 3556/-= (calendar spread
benefit) as per the SPAN Parameter file. This is provided as the spread margin
requirement in the parameter file.
Portfolio 2:
Order/Trade
BUY/SELL
Contract
Detail
Contract
Descriptor
Quantity
Trade
Buy
Sell
FUTIDX
NIFTY
28Feb2002
FUTIDX
NIFTY
28Feb2002
200
Order
Nifty Futures
February
expiry
Nifty Futures
February
expiry
SPAN based
Margin for
single
position
(Rs.)
11014.00
200
10738.00
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Portfolio 3:
Order/Trade
BUY/SELL Contract
Detail
Contract
Descriptor
Quantity
Order
Buy
200
Order
Sell
FUTIDX
NIFTY
28Feb2002
OPTIDX
NIFTY
28Feb2002
1100 CE
SPAN based
Margin
for
single
position (Rs.)
11014.00
200
9090.00
Nifty Futures
February
expiry
Nifty options
strike price
1100
Call
European
Non-Spread Position
Calendar spread benefits are removed for contracts nearing expiry. I.e 3 days before
expiration date, the portfolios are separated for the near month contracts and two separate
portfolios are created and margin is computed separately.
5.2.2 Net buy Premium
For buy option position the intra day net buy premium is computed as margin
requirement
Margin requirement for options buy contract will be net buy premium. This is computed
only for intra day as the net buy premium is expected to be settled on T+1 basis. Net buy
premium is computed for both trade level as well as order level. While computing trade
level net buy premium, set off is given for any premium receivable by the same client /
trader for the same options contract and across options contract. For order level, set off is
given if it is a square off order.
Example
Premium values given under are only examples and have no relation to the actual prices
prevailing.
Client A
Order/Trade
Buy/Sell
Trade
Buy
Contract Detail
Contract Descriptor
Premium value (+
=sell, -=buy)
Nifty
options OPTIDX
NIFTY -15000
strike price 1100 28Feb2002 1100 CE
Call European Feb
expiry
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Trade
Sell
Nifty
options
strike price 1100
Call European Feb
expiry
Trade
Sell
Nifty
options
strike price 1200
Call
European
March expiry
Order
Buy
Nifty
options
strike price 1200
Call
European
March expiry
Net buy premium requirement for Client A
OPTIDX
NIFTY +10000
28Feb2002 1100 CE
OPTIDX
NIFTY +12000
28Mar2002 1200 CE
OPTIDX
NIFTY -10000
28Mar2002 1200 CE
3000
Client B
Order/Trade
Contract Descriptor
Premium value (+
=sell, -=buy)
Trade
Sell
Nifty
options OPTIDX
NIFTY +20000
strike price 1100 28Feb2002 1100 CE
Call
European
Feb expiry
Trade
Buy
Nifty
options OPTIDX
NIFTY -30000
strike price 1100 28Feb2002 1100 CE
Call
European
Feb expiry
Trade
Sell
Nifty
options OPTIDX
NIFTY +12000
strike price 1200 28Mar2002 1200 CE
Call
European
March expiry
Order
Buy
Nifty
options OPTIDX
NIFTY -10000
strike price 1200 28Mar2002 1200 CE
Call
European
March expiry
Net buy premium requirement for Client B
8000
Total Over all trader level net premium requirement will be sum of proprietary level +
individual client net buy premium. In the above case if Client A and Client B belong to
the same dealer, the dealer level net buy premium will be (3000+8000)=Rs.11000/5.2.3 Realised loss
All realized loss made intra day on close out of trade positions in Futures contracts are
retained as margin. This is not carried forward as daily mark to market settlement is done
for futures position. Open positions will be carried forward at closing price of the
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previous day and current days positions are valued at traded price. Realised loss will be
computed at every trade confirmation.
Example
Traded position
Contract
detail
Reliance
petro
February
futures
Nifty feb 300
futures
1010
-30000
1090
Nil
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mentioned process and compares with maximum available margin limit of the client/
trader If both the Client and trader margin are sufficient then the transaction will be sent
to the Exchange and utilized margin for the client and trader will be updated accordingly.
In case the order is a cover order and the maximum margin is fully used, it is additionally
validated against closing margin and the order is send through if the portfolio margin is
less than the closing margin.
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