Clearing settelment procedure

Risk Management

ICCL has a well designed and robust Comprehensive Risk-Management Framework which, inter alia, includes computation and collection of various types of margins, Collateral Management etc. for the Currency Derivatives Segment of USE.

Collateral requirements for ICCL-USE Clearing Members

• Minimum Liquid Networth
  The Clearing Member’s liquid net worth after adjusting for the initial margin and extreme loss margin requirements must be at least Rs. 50 Lakhs at all points in time. Accordingly, every Clearing Member is required to maintain a minimum liquid networth of Rs. 50 lakhs in the prescribed proportion (i.e. Rs. 25 lakhs in cash and balance Rs.25 lakhs in form of cash, cash equivalent or non-cash equivalent) with ICCL.
• Liquid assets
  The liquid assets for trading in currency futures are to be maintained separately in the Currency Derivatives Segment.
• Composition of liquid assets
  Clearing Members of the Currency Derivatives Segment may deposit liquid assets in the form of cash and cash equivalent i.e. Fixed Deposit Receipts, Bank Guarantees of the Schedule Commercial Banks, approved Government Securities and Treasury Bills and non-cash equivalent i.e. approved securities and in any other form of collateral as may be prescribed by ICCL from time to time. List of approved securities is available on the website (www.bseindia.com).
  The cash/cash equivalent component should be at least 50% of the total liquid assets. In other words, non-cash component in excess of the total cash component is not considered as part of Total Liquid Assets for trading/exposure purpose.
  The norms in respect of liquid assets i.e. composition of liquid assets, types of liquid assets, applicable haircuts, single bank and single issuer exposure limits, etc. are mutatis mutandis applicable from the Equity Derivatives Segment.

Procedure for deposit of liquid assets for the Currency Derivatives Segment:

• Cash Deposit
  For depositing cash as liquid assets the Clearing Members need to give instructions to their respective Clearing Banks to transfer the amount to the designated settlement account of ICCL for enhancement of cash collateral.
• Fixed Deposit Receipts (FDRs)
  The FDR(s) of a scheduled commercial bank can be deposited by the Clearing Members towards liquid assets. The FDRs deposited by the Clearing Members should be issued in favour of “Indian Clearing Corporation Ltd. a/c – ‘Trade Name of the Clearing Member" and should be duly discharged by the Clearing Member himself or an authorized signatory of the member on the reverse of the FDRs. A clearing member needs to submit the FDR alongwith a letter (in the prescribed format) of the concerned bank addressed to ICCL.
• Bank Guarantee(s)
  The bank guarantees towards liquid assets should be of a scheduled commercial bank and should have a minimum validity period of three months. The bank guarantees should be strictly as per the prescribed format as given on BSE’s website www.bseindia.com.
  The bank guarantees need to be submitted alongwith a covering letter as per the prescribed format to ICCL.
  In case of renewal, the renewed Bank Guarantee should be submitted alongwith the bank’s renewal letter and a covering letter of the Clearing Member to ICCL in the prescribed format.

Eligible securities by way of pledge:

• Clearing Members can deposit approved Government Securities towards liquid assets subject to hair cut.
• Other eligible securities in dematerialised form can also be deposited towards liquid assets by way of pledge subject to hair cut.
• The list of such securities is available on BSE’s website www.bseindia.com.
• The format of Deed of Pledge is available on BSE’s website www.bseindia.com.

Procedure for withdrawal of collaterals:

For withdrawal of collateral deposited towards liquid assets a letter in the prescribed format is to be submitted by the Clearing Members to ICCL on any working day by 04:00 p.m.

Margins

ICCL has a robust Comprehensive Risk Management Framework. One of the vital components in the risk management framework is computation and collection of various types of margins.

The margin norms in the Currency Derivatives Segment are as follows:

• Initial Margin
  The Initial Margin requirements are, inter alia, based on a worst case loss of a portfolio of an individual client across various scenarios of price changes. The various scenarios of price changes are so computed so as to cover a 99% VaR over a one day horizon. The initial margin so computed is subject to a minimum of 1.75% on the first day of currency futures trading and 1 % thereafter. The initial margin is deducted upfront on an on-line real-time basis from the available liquid assets deposited by the Clearing Member with ICCL.
  
  Computation of Initial Margin is as per the methodology prescribed by SEBI.
• Portfolio based margining system
  The Standard Portfolio Analysis of Risk (SPAN®) methodology is adopted to take an integrated view of the risk involved in the portfolio of each individual client comprising his positions in futures contracts across different maturities. The client-wise margins are grossed across various clients at the Trading /Clearing Member level. The proprietary positions of the Trading / Clearing Member are treated as that of a client for margining purpose.
• Real time computation
  The computation of worst scenario loss has two components. The first is the valuation of the portfolio under the various scenarios of price changes. At the second stage, these scenario contract values are applied to the actual portfolio positions to compute the portfolio values and the initial margin. The scenario contract values are updated five times in a day. The latest available scenario contract values are applied to member/client portfolios on a real time basis.
• Calendar spread margins
  A currency futures position at one maturity which is hedged by an offsetting position at a different maturity is treated as a calendar spread. The benefit for a calendar spread continues till expiry of the near month contract. For a calendar spread position, the extreme loss margin is charged on one third of the mark to market value of the far month contract.

The calendar spread margins for different currency pairs are as follows:

Calendar Spread Margin
Contract	EUR-INR	GBP-INR	JPY-INR	USD-INR
1 month	Rs. 700	Rs 1500	Rs 600	Rs. 400
2 months	Rs. 1000	Rs 1800	Rs. 1000	Rs. 500
3 months	Rs. 1500	Rs 2000	Rs. 1500	Rs. 800
4 months or more	Rs. 1500	Rs. 2000	Rs. 1500	Rs. 1000

• Extreme Loss margin
  Extreme loss margin on the mark to market value of the gross open positions deducted upfront from the available liquid assets of the clearing member on an on line, real time basis are as follows:

Contract	EUR-INR	GBP-INR	JPY-INR	USD-INR
Extreme Loss Margin	0.30%	0.50%	0.70%	1%

• Additional margins
  As a risk containment measure, ICCL may require clearing members to pay additional margins as may be decided from time to time. This would be in addition to the abovementioned margins.
• Collection of margins.
  Aforesaid margins are computed at a client level and collected/adjusted upfront from the liquid assets of the Clearing Members on an on-line real time basis.
• Margin Collection and Enforcement
  The client margins are to be compulsorily collected and reported to ICCL/USE by the members.
• Revision of Risk Management norms
  ICCL may revise the aforesaid risk management norms from time to time.

CURRENCY FUTURES READY RECKONER
Specifications	CURRENCY PAIR
	USD-INR	EUR-INR	GBP-INR	JPY-INR
Contract Size	1 Contract is for 1000 USD	1 Contract is for 1000 Euros	1 Contract is for 1000 Pound Sterling	1 Contract for 100,000 Yen
Initial Margin	99% VaR subject to minimum of 1.75% on the first day of trading and 1% thereafter	Initial Margin computed is subject to minimum of 2.80% on first day of trading and 2% thereafter	Initial Margin computed is subject to minimum of 3.20% on first day of trading and 2% thereafter	Initial Margin computed is subject to minimum of 4.50% on first day of trading and 2.30% thereafter
ELM	1% of MTM value of open position	0.3% of MTM value of open position	0.5% of MTM value of open position	0.7% of MTM value of open position
Calendar Spreads
	1 Contract is for 1000 USD	1 Contract is for 1000 Euros	1 Contract is for 1000 Pound Sterling	1 Contract for 100,000 Yen
	1 Contract is for 1000 USD	1 Contract is for 1000 Euros	1 Contract is for 1000 Pound Sterling	1 Contract for 100,000 Yen
	1 Contract is for 1000 USD	1 Contract is for 1000 Euros	1 Contract is for 1000 Pound Sterling	1 Contract for 100,000 Yen
	1 Contract is for 1000 USD	1 Contract is for 1000 Euros	1 Contract is for 1000 Pound Sterling	1 Contract for 100,000 Yen
Daily Settlement	T+1	T+1	T+1	T+1
Final Settlement	T+2	T+2	T+2	T+2
Last Trading Day	Two working days prior to the last business day of the expiry month.
Final Settlement Day	Last working day (excluding Saturdays) of the expiry month.
Daily Settlement Price	Calculated on basis of daily closing price of the Currency Future’s Contract.
Final Settlement Price	RBI Reference rate on the date of expiry of the contract.