NSE Trading System - Risk Management (Equities)(Part II)

Gross Exposure Limits

Members are also subject to gross exposure limits. Gross exposure for a member, across all securities in rolling settlements, is computed as absolute (buy value - sell value), i.e. ignoring +ve and -ve signs, across all open settlements. Open settlements would be all those settlements for which trading has commenced and for which settlement payin is not yet completed. The total gross exposure for a member on any given day would be the sum total of the gross exposure computed across all the securities in which a member has an open position.

Gross exposure limit would be

or any such lower limits as applicable to the members.

The total base capital being the base minimum capital (cash deposit and security deposit) and additional deposits, not used towards margins, in the nature of securities, bank guarantee, FDR, or cash with NSCCL and NSE.

In case of securities that are traded in the Rolling settlement (Type ‘N’ and security series ‘EQ’), the GE multiple for each security are as under:

All new securities to be traded on the Exchange shall be subject to exposure multiple of 8.5 times.

It is clarified that while computing the gross exposure at any time for a particular trading day, for the purpose of the above limits, members are required to add the net outstanding positions of the previous settlement period to the cumulative net outstanding positions as of that particular trading day until the securities pay-in day for the previous settlement period.

Members exceeding the gross exposure limit are not permitted to trade with immediate effect and are not permitted to do so until the cumulative gross exposure is reduced to below the gross exposure limits (as defined above or any such lower limits as applicable to the members) or they increase their limit by providing additional base capital.

Members who desire to reduce their gross exposure may submit their order entry requirements as per the prescribed format.

If members desire to increase their limits, additional deposits by way of cash, bank guarantee or Fixed Deposit Receipt (FDR) have to be submitted to NSCCL. Additional deposits by way of securities in electronic form ('demat securities') may be deposited as per procedures.

The additional deposits of the member is used first for adjustment against gross exposure of the member. After such adjustments, the surplus additional deposits, if any, excluding deposits in the form of securities, is utilised for meeting margin requirements.

A penalty of Rs.5,000/- is levied for each violation of gross exposure limit and Intra Day Turnover limits, which shall be paid by next day. The penalty is debited to the clearing account of the member. Non-payment of penalty in time will attract penal interest of 15 basis points per day till the date of payment.

In case of second and subsequent violation during the day the penalty will be in multiples of Rs.5000/- for each such instances. (For example in case of second violation for the day the penalty levied will be Rs.10000/- , Rs.15000 for third instances and so on).

In respect of violation of stipulated limits on more than one occasion on the same day, each violation would be treated as a separate instance for purpose of calculation of penalty.

The penalty as indicated above, would be charged to the members irrespective of whether the member brings in additional capital subsequently.

Members may provide additional margin/collateral deposit (additional base capital) to NSCCL, over and above their minimum deposit requirements (base capital), towards margins and/ or exposure / turnover limits.

Members may submit such deposits in any one form or combination of the following forms:

1. Cash

2. Fixed Deposit Receipts (FDRs) issued by approved banks and deposited with approved Custodians or NSCCL

3. Bank Guarantee in favour of NSCCL from approved banks in the specified format.If a Bank guarantee is submitted from bank, whose networth is above Rs.500 crores, then the same is considered as cash component and all other Bank guarantees will be considered as non-cash component as per past procedures.

4. Approved securities in demat form deposited with approved Custodians.

5. Government Securities, The procedure for acceptance and list of securities is as specified in circular. The haircut for the Government Securities shall be 10%.

6. Units of the schemes of liquid mutual funds or government securities mutual funds. The haircuts for units of liquid funds or government securities mutual funds shall be 10% of Net Asset Value (NAV). Units of all Mutual Funds schemes except Liquid Mutual Funds and Government Securities Mutual Funds (in demat) shall be eligible security for the purpose of non-cash component of additional capital and margin subject to a haircut equivalent to the VaR of the unit's NAV plus any exit load charged by the mutual fund.

All Additional Base Capital (ABC) given in the form of cash / FDR/BG’s from approved Banks whose networth is above 500 crores, (hereinafter referred to as 'Cash Component') should be atleast 50% of the total ABC and Cash Margins in respect of every trading member. Incase where non - cash component is more than 50 % of the total additional base capital, the excess non-cash component is ignored for the purpose of exposure limits requirements and / or margins requirements.

Exemption for institutional deals

While computing margins, institutional deals are excluded. Deals executed on behalf of the following entities are considered as institutional deals:

1. Financial Institutions

2. SEBI registered FIIs

3. Banks

4. SEBI registered Mutual Funds

Deals are identified by the use of the participant code in the trades reported on the NSE.

Deals entered into on behalf of custodial participants i.e. carrying custodial participant code are considered as institutional deals unless not confirmed by the respective custodians in which case the deals shall attract margins.

Non-Custodial Institutional Deals are identified by the use of the participant code 'NCIT'. The 'NCIT' deals will be exempted for margin purposes (However, VaR based margin which is charged on institutional trades on the net outstanding sale position, in securities shall be applicable in this case also) and the settlement obligation will remain with TM clearing member. Non Custodial Institutional deals, which are not marked as 'NCIT' at the time of order entry, will not be exempted.

All TM clearing members are required to provide details of the contract notes for all Non-Custodial Institutional Trades

If a members deliver securities prior to the securities pay-in day, then the margin payable by the member will be recomputed after considering the above pay-in of securities. The margin benefit on account of early payin (EPI) of securities shall be given to the extent of the net delivery position across across all clients of the member.

The value of the advance pay-in made is reduced from the cumulative net outstanding sale position of the member for the purpose of gross exposure limits.

The early payin of securities only upto the working day prior to the scheduled settlement payin day shall be considered for the purpose of early payin benefits. In case any member makes early payin on the scheduled day of payin for the settlement, no benefit will accrue to the member. Such early payin shall not be adjusted against the settlement payin obligation and it would be treated as short delivery. Members are therefore alerted to ensure that no early payin is made on the scheduled day of settlement payin.

NSE may require members to pay-in funds and securities prior to the scheduled pay-in day for funds and securities. The relevant authority would determine from time to time, the members who would be required to pay-in funds and securities prior to the pay-in day. NSE would also determine securities and funds which would be required to be paid in and the date by which such pay-in shall be made by the respective member.

The value of such prior pay-in of funds and securities will not be reduced from the cumulative net position of the member for the purpose of gross exposure reduction. There will be no margin exemption available for such pay-in of funds and securities.