Initial Margin

Initial margin shall be payable on all open positions of Clearing Members, upto client level, at any point of time, and shall be payable upfront by Clearing Members in accordance with the margin computation mechanism and/ or system as may be adopted by Clearing Corporation from time to time. Presently, the initial margins would be based on the zero coupon yield curve computed at the end of the day as explained above with trades of same day settlement (t =0). However, in case of large deviation between the yields generated using only t = 0 trades and all trades, initial margins revised accordingly may be computed and collected by the Clearing corporation from the members at its discretion.

Initial Margin shall include SPAN margins and such other additional margins, that may be specified by Clearing Corporation from time to time.

Clearing Corporation will adopt SPAN (Standard Portfolio Analysis of Risk) system or any other system for the purpose of real time initial margin computation.

Initial margin requirements shall be based on 99% value at risk over a one day time horizon. Provided, however, in the case of futures contracts, 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 may be computed over a two day time horizon, applying the appropriate statistical formula.

The methodology for computation of Value at Risk percentage will be as per the recommendations of SEBI from time to time.

1. For client positions - shall be netted at the level of individual client and grossed across all clients, at the Trading/ Clearing Member level, without any setoffs between clients.

2. For proprietary positions - shall be netted at Trading/ Clearing Member level without any set offs between client and proprietary positions.

For this purpose, various parameters shall be as specified hereunder or such other parameters as may be specified by the relevant authority from time to time:

In the case of Notional Bond Futures, the price scan range shall be 3.5 Standard Deviation (3.5 sigma) and in no case the initial margin shall be less than 2% of the notional value of the Futures Contracts, which shall be scaled up by look ahead period as may be specified from time to time. For Notional T-Bill Futures, the price scan range shall be 3.5 Standard Deviation (3.5 sigma) and in no case the initial margin shall be less than 0.2% of the notional value of the futures contract, which shall be scaled up by look ahead period as may be specified from time to time.

The margin on calendar spread shall be calculated at a flat rate of 0.125% per month of spread on the far month contract subject to a minimum margin of 0.25% and a maximum margin of 0.75% on the far side of the spread with legs upto 1 year apart.

A Calendar spread positions will be treated as non-spread (naked) positions in the far month contract, 3 trading days prior to expiration of the near month contract.

Clearing Members shall be subject to Exposure limits in addition to initial margins. Exposure Limit shall be 100 times the liquid net worth i.e. 1% of the notional value of the gross open positions in Notional 10 year bond futures (both coupon bearing and zero coupon) and shall be 1000 times the liquid net worth i.e. 0.1% of the gross open positions in notional 91 day T-Bill futures.

Exposure limit for calendar spreads: the Calendar spread shall be regarded as an open position of one third of the mark to market value of the far month contract. As the near month contract approaches expiry, the spread shall be treated as a naked position in the far month contract three days prior to the expiry of the near month contract

Each Trading Member/ Custodial Participant shall ensure that his clients do not exceed the specified position limit. The position limits shall be at the client level and for near month contracts and shall be 15% of the open interest or Rs. 100 crores, whichever is higher.

For futures contracts open interest shall be equivalent to the open positions in that futures contract multiplied by its last available closing price.