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Computation of Initial Margin |
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ICCL has adopted the Standard Portfolio Analysis of Risk (“SPAN”) methodology for the purpose of real time risk management.
The Initial Margin requirement is based on a worst scenario loss of a portfolio of an individual client comprising his positions in all the options and futures contracts across various scenarios of price and volatility changes. The Initial Margin requirements shall be set to provide coverage of at least a 99% single-tailed confidence interval of the estimated distribution of future exposure over a one-day time horizon.
The client-wise margins would be grossed across various clients at the Trading / Clearing Member level. The proprietary positions of the Trading / Clearing Member would be treated as that of a client (net basis).
The margins levied to members shall be levied and collected in INR.
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| b |
Portfolio Based Margining |
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The parameters involved in a portfolio-based margining approach include-
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| I. |
Worst Scenario Loss |
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The worst-case loss of a portfolio is calculated by valuing the portfolio under several scenarios of changes in price and volatility. The scenarios to be used for this purpose would be: |
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| Risk Scenario Number |
Price Move in Multiples of Price Range |
Volatility Move in Multiples of Volatility Range |
Fraction of Loss to be Considered |
| 1 |
0 |
+1 |
100% |
| 2 |
0 |
-1 |
100% |
| 3 |
+1/3 |
+1 |
100% |
| 4 |
+1/3 |
-1 |
100% |
| 5 |
-1/3 |
+1 |
100% |
| 6 |
-1/3 |
-1 |
100% |
| 7 |
+2/3 |
+1 |
100% |
| 8 |
+2/3 |
-1 |
100% |
| 9 |
-2/3 |
+1 |
100% |
| 10 |
-2/3 |
-1 |
100% |
| 11 |
+1 |
+1 |
100% |
| 12 |
+1 |
-1 |
100% |
| 13 |
-1 |
+1 |
100% |
| 14 |
-1 |
-1 |
100% |
| 15 |
+2 |
0 |
35% |
| 16 |
-2 |
0 |
35% |
The probable premium value at each price scan point for volatility up and volatility down scenarios is calculated and then compared to the theoretical premium value (based on last closing value of the underlying) to determine profit or loss.
The Black 1976 option pricing model is used for the purpose of calculation of probable/theoretical option values for all Interest Rate Options while the Black-Scholes option pricing model is used for the purpose of calculation of probable/theoretical option values for all Currency and Cross-Currency Options.
The maximum loss under any of the scenario (considering only 35% of the loss in case of scenarios 15 and 16) is referred to as the Worst Scenario Loss.
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| II. |
Volatility |
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The standard deviation (volatility estimate) is computed using the Exponentially Weighted Moving Average method (“EWMA”).
The estimate at the end of time period t (σt) is estimated using the volatility estimate at the end of the previous time period. i.e. as at the end of t-1 time period (σt-1), and the return (rt) observed in the futures market during the time period t.
The volatility estimated at the end of the day’s trading is used in calculating the initial margin calls at the end of the same day.
The formula shall be as under:
Where:
- λ is a parameter which determines how rapidly volatility estimates changes. The value of λ is currently fixed at 0.995.
- σ (sigma) means the standard deviation of daily returns in the futures market.
- r (return) is defined as the logarithmic return: rt = ln (Ct/Ct-1) where Ct is the price of the Currency Future at time t.
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| III. |
Volatility Scan Range |
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The Volatility Scan Range (“VSR”) is the amount by which the implied volatility is changed in each risk array scenario. The VSR is referred to in percentage terms.
The VSR for all Currency and Interest Rate Derivatives Contracts is derived as the maximum of:
- 25% of annualized EWMA Volatility and
- Minimum VSR%
| Product |
VSR Factor |
Minimum VSR |
| Currency Contracts |
| EURINR |
25% |
3% |
| EURUSD |
25% |
3% |
| GBPINR |
25% |
3% |
| GBPUSD |
25% |
3% |
| JPYINR |
25% |
3% |
| USDINR |
25% |
3% |
| USDJPY |
25% |
3% |
| Interest Rate Contracts |
| Interest Rate |
25% |
3% |
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| IV |
Price Scan Range |
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The Price Scan Range ("PSR") is the probable price change over a one-day period. PSR would be specified by ICCL from time to time. The PSR is referred to in standard deviation/ sigma (σ) terms.
The PSR for all Currency and Interest Rate Derivatives Contracts (futures and options) is derived as the maximum of:
- 6σ and
- Minimum Percentage of Underlying Price.
| Product |
PSR |
Minimum Initial Margi |
| Currency Contracts – Future and Option |
| EURINR |
6σ |
2.15% |
| EURUSD |
6σ |
2.50% |
| GBPINR |
6σ |
2.25% |
| GBPUSD |
6σ |
2.50% |
| JPYINR |
6σ |
2.65% |
| USDINR |
6σ |
1.50% |
| USDJPY |
6σ |
2.50% |
| Interest Rate Contracts – Future and Option |
| Interest Rate |
6σ |
1.75% |
| 91 Day T Bill |
6σ |
0.065% |
| ONMIBOR |
6σ |
5.50% |
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| V |
Initial Margin Requirement |
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The Initial Margin Requirement is computed as follows:
| Initial Margin Requirement |
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Maximum of: |
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Net Option Value |
| Scan Risk |
| Inter Commodity Credit |
| Intra Commodity Charge |
| Short Option Minimum |
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There is no separate short option minimum charge apart from the margin parameters specified. |
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ICCL provides calendar spread margin benefit wherein a position in one expiry is hedged by an offsetting position in a different maturity of the same underlying
The margin for options is calculated based on delta of the portfolio in each month. A portfolio consisting of a near month option with a delta of 100 and a far month option with a delta of –100 bears a spread charge equal to the spread charge for a portfolio which is long 100 near month futures and short 100 far month futures. Portfolio pertains to a portfolio consisting of futures and /or options contract on a particular underlying. Option positions of different expiry, irrespective of their strike prices, shall also attract calendar spread margin.
The benefit for a calendar spread continues till expiry of the near month contract. The calendar-spread margin shall be charged in addition to the worst-scenario loss of the portfolio.
| Product |
Less than or equal to 1 month |
More than 1 month and
Less than or equal to 2 months
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More than 2 months and
Less than or equal to 3 months
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More than 4 months |
| Currency Contracts |
| EURINR |
750 |
1050 |
1550 |
1550 |
| EURUSD |
1600 |
1900 |
2100 |
2200 |
| GBPINR |
1575 |
1875 |
2075 |
2075 |
| GBPUSD |
1600 |
1900 |
2100 |
2200 |
| JPYINR |
675 |
1075 |
1575 |
1575 |
| USDINR |
500 |
600 |
900 |
1100 |
| USDJPY |
1600 |
1900 |
2100 |
2200 |
| Interest Rate Contracts |
| Interest Rate |
1700 |
2000 |
2300 |
32000 |
| 91 Day T Bill |
110 |
160 |
210 |
260 |
| ONMIBOR |
7000 |
7500 |
8000 |
8000 |
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The Net Option Value (“NOV”) is the current market value of the option times the number of options (positive for long options and negative for short options) in the portfolio. The Net Option Value would be added to the Liquid Net Worth of the clearing member i.e. the value of short options will be deducted from the liquid net worth and the value of long options will be added thereto.
Thus mark-to-market gains and losses on option positions are adjusted against the available liquid net worth of the Clearing Member. Since the options are premium style, there will be no mark-to-market settlement of profit or loss.
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Extreme Loss Margin is applicable on the gross notional value of the open positions in addition to the other margins on a real time basis. It shall be deducted from the liquid assets of the clearing member on an online, real time basis.
Extreme Loss Margin is applicable only on futures and short option positions and is not applicable on long option positions.
The notional value is be computed using the latest futures price for futures contracts and last available closing price/reference rate of the underlying for the options contracts.
In case of calendar spread positions in futures contracts, extreme loss margin is levied on one third of the value of the open position of the far month futures contract.
The Extreme Loss Margin rates are as under:
| Product |
Extreme Loss Margin |
| Futures |
Options |
| Currency Contracts |
| EURINR |
0.15% |
0.75% |
| EURUSD |
0.50% |
0.50% |
| GBPINR |
0.25% |
0.75% |
| GBPUSD |
0.50% |
0.50% |
| JPYINR |
0.35% |
0.75% |
| USDINR |
0.50% |
0.75% |
| USDJPY |
0.50% |
0.50% |
| Interest Rate Contracts |
| Interest Rate |
0.25% |
0.25% |
| 91 Day T Bill |
0.015% |
NA |
| ONMIBOR |
0.50% |
NA |
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Intraday Current Exposure Margin
Payable crystalized obligations based on the closed-out futures positions and payable/receivable premium at client level.
On intraday basis the net payable/receivable amount at client level shall be calculated using:
- Premium payable/receivable
- Futures crystallized Profit or Loss (calculated based on weighted average prices of trades executed).
If the overall amount at client level is payable, such amount shall be the intraday Current Exposure Margin (“CEM”) for the client.
CEM Example
| Particulars |
Premium Payable (+) /Receivable(-) |
Crystallised Loss (+) /Profit (-) |
Current Exposure Margin |
| Client 1 |
-20 |
-90 |
0 |
| Client 2 |
50 |
30 |
80 |
| Client 3 |
0 |
0 |
0 |
| Client 4 |
-30 |
80 |
50 |
| Client 5 |
30 |
-80 |
0 |
| Client 6 |
-100 |
80 |
0 |
| Client 7 |
100 |
-80 |
20 |
End – of - day basis
Payable obligations at client level considering all futures and options positions.
At the end of day, the payable/receivable amount at client level will be calculated using:
- Futures mark to market profit/loss to be settled
- Options premium payable/receivable
- Options exercise/assignment for expired contracts
- Futures final settlement for expired contracts
If the overall amount at client level is payable, such amount will be the end -of- day consolidated crystallized obligation margin for the client. The margin on consolidated crystallized obligations will replace the net buy premium, intraday crystallized losses, assignment margin and futures final settlement margin levied currently. The margin on consolidated crystallized obligations will be released on completion of settlement.
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The ICCL SPAN risk parameters shall be updated at:
- Beginning-of-Day
- 11:00 a.m.
- 12:30 p.m.
- 02:00 p.m.
- 03:30 p.m.
- 05:00 p.m.
- 06:30 p.m.
- Interim Risk File (5.00 p.m. – 8.00 p.m.)
- End-of-Day
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The entry and exit threshold for the Risk Reduction Mode (“RRM”) is detailed below:
- Clearing Members: Put in RRM at 90% collateral utilisation & moved back to normal mode when utilisation goes below 85%.
- Trading Members: Put on RRM at 90% utilisation of trading limit assigned by their Clearing Members & moved back to normal mode when limit utilisation goes below 85%.
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Assignment Margin shall be levied on assigned positions of the clearing members towards exercise settlement obligations for option contracts. For option positions exercised, the seller of the options shall be levied assignment margins which shall be 100% of the net exercise settlement value payable by a clearing member towards exercise settlement. Assignment margin shall be levied till the completion of pay-in towards the exercise settlement. Assignment margins shall be computed as net of assignment settlement and futures final settlement.
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As a risk containment measure, ICCL may require clearing members to pay additional margins as may be decided from time to time. This shall be in addition to the aforementioned margins, which are or may have been imposed from time to time.
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Aforesaid margins are computed at a client level portfolio and grossed across all clients (including the proprietary positions of member) at the member level. Margins are collected/adjusted upfront from the liquid assets of the Clearing Members on an on-line real time basis.
Members are required to collect initial margins, extreme loss margins, calendar spread margins and mark to market settlements and report details of such margins collected from their client/constituents to ICCL.
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Clearing members shall provide for margin in any one or more of the eligible collateral modes as specified by ICCL. The margins shall be collected/adjusted from the liquid assets of the member on a real time basis.
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Premium would be settled in INR and would be paid in by the buyer in cash and paid out to the seller in cash on T+1 day. Until the buyer pays in the premium, the premium due shall be deducted from the available liquid assets on a real time basis. For arriving at the settlement value in INR for EURUSD and GBPUSD contracts, the latest available RBI reference rate for USDINR shall be used. For USDJPY contracts, the settlement value in INR shall be arrived at using the latest available exchange rate published by RBI for JPYINR.
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The mark to market gains and losses shall be settled in cash before the start of trading on T+1 day. If mark to market obligations are not collected before start of the next day’s trading, ICCL collects correspondingly higher initial margin to cover the potential for losses over the time elapsed in the collection of margins.
The daily closing price of currency futures contract for mark to market settlement would be calculated based on the last half an hour weighted average price of the futures contract. In the absence of trading in the last half an hour the theoretical price would be taken.
The Mark to Market settlement for Cross-Currency derivative contracts will be based on the following formula:
(C2 – C1) x R2,
Where C2 is closing price of cross-currency derivative contract on T day, C1 is closing price of cross-currency derivative contract on (T - 1) day, R2 is USD-INR reference rate on T day.
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