Initial Margin
Initial Margin is also called SPAN Margin . NSCCL (Clearing Corporation of NSE) and ICCL (Clearing Corporation of BSE) collects initial margin up-front for all the open positions of a Clearing Member (CM) based on the margins computed by SPAN Software. A CM is in turn required to collect the initial margin from the Trading Member (TMs generally known as Stock Broker) and his respective clients. Similarly, a TM should collect upfront margins from his clients.
Initial margin requirements are based on 99% value at risk over a one day time horizon. However, in the case of futures contracts (on index or individual securities), where it may not be possible to collect mark to market settlement value, before the commencement of trading on the next day, the initial margin is computed over a two-day time horizon, applying the appropriate statistical formula. The methodology for computation of Value at Risk percentage is as per the recommendations of SEBI from time to time.
Initial margin requirement for a member:
- For client positions - is netted at the level of individual client and grossed across all clients, at the Trading/Clearing Member level, without any setoffs between clients.
- For proprietary positions - is netted at Trading/Clearing Member level without any setoffs between client and proprietary positions.
Premium Margin
In addition to Span Margin, Premium Margin is charged to members. The premium margin is the client wise premium amount payable by the buyer of the option and is levied till the completion of pay-in towards the premium settlement.
Assignment Margin
Assignment Margin is levied on a CM in addition to SPAN margin and Premium Margin. It is levied on assigned positions of CMs towards interim and final exercise settlement obligations for option contracts on index and individual securities till the pay-in towards exercise settlement is complete.
The Assignment Margin is the net exercise settlement value payable by a Clearing Member towards interim and final exercise settlement and is deducted from the effective deposits of the Clearing Member available towards margins.
Initial Margin requirement = Total SPAN Margin Requirement + Buy Premium + Assignment Margin
Exposure Margin
The exposure margins for options and futures contracts on index are as follows:
For Index options and Index futures contracts:
3% of the notional value of a futures contract. In case of options it is charged only on short positions and is 3% of the notional value of open positions.
For option contracts and Futures Contract on individual Securities:
The higher of 5% or 1.5 standard deviation of the notional value of gross open position in futures on individual securities and gross short open positions in options on individual securities in a particular underlying. The standard deviation of daily logarithmic returns of prices in the underlying stock in the cash market in the last six months is computed on a rolling and monthly basis at the end of each month.
Additional Exposure Margin
Effective from February 2018, immediately the day after the expiry of February 2018 contracts , levying additional exposure margin based on Market Wide Position Limit has been started. The change in exposure margin shall be applicable from next trading day and shall be applicable till the open interest in the security reduces to below 70% of MWPL at end of the day.
|
Combined MWPL utilization at End of Day across Exchanges
|
Applicable Exposure margin of the security
|
|
Upto 60%
|
No additional Margins
|
|
70% to less than 75%
|
To be increased by 50% of the normal applicable Exposure margin from next trading day
|
|
75% to less than 80%
|
To be increased by 100% of the normal applicable Exposure margin from next trading day
|
|
80% to less than 85%
|
To be increased by 150% of the normal applicable Exposure margin from next trading day
|
|
85% to less than 90%
|
To be increased by 200% of the normal applicable Exposure margin from next trading day
|
|
90% to less than 95%
|
To be increased by 300% of the normal applicable Exposure margin from next trading day
|
For this purpose notional value means:
- For a futures contract - the contract value at last traded price/closing price.
- For an options contract - the value of an equivalent number of shares as conveyed by the options contract, in the underlying market, based on the last available closing price.
In case of calendar spread positions in futures contract, exposure margins are levied on one third of the value of open position of the far month futures contract. The calendar spread position is granted calendar spread treatment till the expiry of the near month contract.
Initial Margin requirement = Total SPAN Margin Requirement + Buy Premium + Assignment Margin+ Exposure Margin + Additional Exposure Margin
