Stress Test for Credit Risk
Equity Cash Segment :
Frequency: Daily
Note: Day of Stress test –'S' day
- 1. CC shall compute the ‘Cumulative Funds pay-in’, 'Cumulative Funds pay-out', ‘Cumulative Securities pay-in’ and ‘Cumulative Securities pay-out’ of all members as on the end of pay-in deadline on the ‘S’ day. For this purpose, cumulative pay in/pay out of each member's trades (shall include non-institutional trades as well as 2X% by value of those institutional trades which have not yet been confirmed by the custodian) undertaken on ‘S-1’ day and on ‘S’ day till the pay-in deadline shall be considered.
*X is the highest daily % by value of custodial rejects in the previous 12 months
- Any early pay-in of funds/securities is ignored.
- It is assumed that each clearing member would default in meeting its 'cumulative funds pay-in' and 'cumulative securities pay-in' obligations.
- Loss:
- Securities pay-in failure of the member
It is assumed that the failure to bring in securities would result in financial close-out and ICCL would suffer a loss of 20% (at the minimum) of the value of such securities pay-in obligation
- Funds pay-in obligation failure of the member
The assumed loss on liquidation of securities that would have been paid-out to the defaulting member is:
a. Group 1 securities – 20%
b. Group 2 & 3 securities – 20% scaled up by root of 3.
- Gross loss due to member
Gross loss
due to member |
= |
Funds pay-in |
+ |
120% of securities
pay-in |
- |
Funds pay-out |
- |
Liquidation value of
securities pay-out |
|
- Coverage:
ICCL calculates the gross loss (as per 4 above) for each clearing member and assesses that against the defaulting clearing members' mandatory margins (in case of early pay-in, those margins which would have been applicable had the early pay-in not been made, are considered). Excess collateral, if any, is ignored. Equity scrips as collateral, if any, are valued with minimum 20% haircut.
- ICCL calculates the total credit exposure due to simultaneous default of at least two clearing members (based on residual loss calculated in 5 above) and their associates causing highest credit exposure.
- ICCL computes the 'Cumulative Funds pay-in', 'Cumulative Funds pay-out', 'Cumulative Securities pay-in' and 'Cumulative Securities pay-out' of all custodians as on the end of pay-in deadline on the 'S' day. For this purpose cumulative pay-in/payout of each custodian's trades (including those trades which have been confirmed by the custodian) undertaken on 'S-2' day, 'S-1' day and on 'S' day till the pay-in deadline is considered.
- Any early pay-in of funds/securities is ignored.
- It is assumed that each custodian would default in meeting its 'cumulative funds pay-in' and 'cumulative securities pay-in' obligation.
- Loss:
- Securities pay-in failure of the member
It is assumed that the failure to bring in securities would result in financial close-out and ICCL would suffer a loss of 20% (at the minimum) of the value of such securities pay-in obligation.
- Funds pay-in obligation failure of the member
The assumed loss on liquidation of securities that would have been paid-out to the defaulting member is:–
a. Group 1 securities: 20%
b. Group 2 & 3 securities: 20% scaled up by root of 3.
- Gross loss due to member / custodian
Gross loss
due to member / custodian |
= |
Funds pay-in |
+ |
120% of securities
pay-in |
- |
Funds pay-out |
- |
Liquidation value
of securities pay-out |
|
- Coverage:
- ICCL calculates the gross loss (as per 4 above) for each clearing member /custodian and assesses that against the member’s / custodian’s mandatory margins (in case of early pay-in, those margins which would have been applicable had the early pay-in not been made, are considered.) Excess collateral, if any, is ignored. Equity scrips as collateral, if any, are valued with minimum 20% haircut.
- ICCL calculates the total credit exposure due to each member / custodian (based on residual loss calculated in 5 above) and their associates daily.