Risk management system at NSE

A sound risk management system is integral to an efficient clearing and settlement system. NSE introduced for the first time in India, risk containment measures that were common internationally but were absent from the Indian securities markets. NSCCL (National Securities Clearing Corporation Ltd.) has put in place a comprehensive risk management system, which is constantly upgraded to pre-empt market failures. It ensures that trading member obligations are commensurate with their networth. Risk containment measures include capital adequacy requirements of members, monitoring of member performance and track record, stringent margin requirements, position limits based on capital, on-line monitoring of member positions and automatic disablement from trading when limits are breached, etc. Daily margins payable by members consists of (1) Value at Risk Margin, (2) Extreme Loss Margin, and (3) Mark to Market Margin.

Mark-to-Market Margin :

Mark to market loss is calculated by marking each transaction in security to the closing price of the security at the end of trading. In case the security has not been traded on a particular day, the latest available closing price at the NSE shall be considered as the closing price. In case the net outstanding position in any security is nil, the difference between the buy and sell values shall be considered as notional loss for the purpose of calculating the mark to market margin payable.

The mark to market margin (MTM) is collected from the member before the start of the trading of the next day. The MTM margin is collected/adjusted from/against the cash/cash equivalent component of the liquid net worth deposited with the NSE. The MTM margin shall be collected on the gross open position of the member. The gross open position for this purpose would mean the gross of all net positions across all the clients of a member including its proprietary position. There would be no netting off of the positions and set off against MTM profits across two rolling settlements 1.e., T day and T-1 day. However, for computation of MTM profits/losses for the day, setting or netting or setoff against MTM profits would be permitted. In case of Trade for Trade Segment (TFT segment) each trade shall be marked to market based on the closing price of that security. The MTM margin so collected shall be released on completion of pay-in of the settlement.

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