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Initial Margins
The Exchange has adopted SPAN (Standard Portfolio Analysis of Risk) system or
may adopt any other system for the purpose of real-time initial margin computation.
Initial margin requirements shall be based on 99% VaR (Value at Risk) over a one-day
time horizon. The detailed methodology of calculation of initial margin is given in
Annexure 1.
Initial margin requirements for a Member for each contract shall be as under:
a. For client positions shall be netted at the level of individual client and grossed
across all clients, at the Member level, without any set-offs between clients.
b. For proprietary positions - shall be netted at Member level without any set-offs
between client and proprietary positions.
For the purpose of SPAN Margin, various parameters, or such other parameters as
may be specified from time to time shall be as specified as under:
1.2.1. Price Scan Range
Price Scan Range will be four standard deviations (4 sigma) as calculated for VaR
SPAN is a registered trademark of the Chicago Mercantile Exchange, used herein under
License obtained by NSCCL from CME. The Chicago Mercantile Exchange assumes no
liability in connection with the use of SPAN by any person or entity.
1 / 18
purpose for the prices of futures contracts or such other Price Scan Range as may be
specified by the Exchange from time to time. The minimum margin percentages for
various commodities shall be as specified in the following table or as may be
specified by the Exchange from time to time:
Commodity
Pure Gold Mumbai
Pure Silver New Delhi
J34 Medium Staple Cotton Bhatinda
S06 L S Cotton Ahmedabad
Soybean Indore
Refined Soya Oil Indore
Rapeseed Mustard Seed Jaipur
Expeller Rapeseed Mustard Oil Jaipur
Crude Palm Oil Kandla
RBD Palm Olein Kakinada
Margins can be paid by the Members in cash or in collateral security deposits in the
form of bank guarantees, fixed deposits receipts and approved Government of India
securities.
1.4.
1.5.
Non-fulfillment of either the whole or part of the initial margin obligations will be
treated as a violation of the Rules, Bye-Laws and Regulations of the Exchange and
will attract penal charges as stipulated by NCDEX from time to time. In addition, the
Exchange may, within such time as it may deem fit, withdraw any or all of the
membership rights of a Member including the withdrawal of trading facilities of the
Members clearing through such Clearing Members, without any notice.
In addition, the outstanding positions of such Members and/ or constituents clearing
and settling through such Members, may be closed out forthwith or any time
thereafter at the discretion of the Exchange, to the extent possible, by placing
counter orders in respect of the outstanding position of Members without any notice
to the Member and/ or constituent, and such action shall be final and binding on the
Members and/ or constituents. The Exchange may also initiate such other risk
containment measures as it deems fit with respect to the open positions of the
Members and / or constituents.
The Exchange may, in addition to the foregoing provisions, take additional measures
like imposing penalties, collecting appropriate deposits, invoking bank guarantees/
fixed deposit receipts, realizing money by disposing off the securities and exercising
such other risk containment measures as it deems fit and may further take such
disciplinary action as it may deem fit and appropriate in this regard.
1.6.
Exposure Limits
This is defined as the maximum open positions that a Member can take across all
contracts and is linked to the Liquid Net Worth of the Member available with the
Exchange.
The Member will not be allowed to trade once the Exposure limits have been
exceeded on the Exchange. The Trader workstation of the Member will be disabled
and trading will be permitted only on enhancement of Exposure limits by deposit of
Additional Capital.
1.6.1. Liquid Networth
Liquid Networth shall be computed as effective deposits less initial margin payable at
any point in time. The Liquid Networth maintained by the Members at any point in
time shall not be less than Rs.25 lakhs (referred to as Minimum Liquid Net Worth) or
such other amount, as may be specified by the Exchange from time to time
1.6.2. Effective Deposits
All deposits made by the Members in the form of cash or cash equivalents form the
effective deposits. For the purpose of computing effective deposits, cash equivalents
mean bank guarantees, fixed deposit receipts and Government of Indian securities.
1.6.3. Method of computation of Exposure Limits
Exposure limits shall be specified as a multiple (x) of the liquid net worth. i.e. a
Member can have an exposure limit of x times his liquid net worth.. The multiple (x)
shall be as specified hereunder or as may be prescribed by the Exchange from time
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to time:
Commodity
Pure Gold Mumbai
Pure Silver New Delhi
J34 Medium Staple Cotton Bhatinda
S06 L S Cotton Ahmedabad
Soybean Indore
Refined Soya Oil Indore
Rapeseed Mustard Seed Jaipur
Expeller Rapeseed Mustard Oil Jaipur
Crude Palm Oil Kandla
RBD Palm Olein Kakinada
Multiple (x)
25
25
40
25
25
25
25
25
25
As a risk containment measure, the Exchange may require the Members to make
payment of additional margins as may be decided from time to time. This will be in
addition to the initial margin, which are or may have been imposed from time to
time. The Exchange may also require the Members to reduce/ close out open
positions to such levels and for such contracts as may be decided by it from time to
time.
1.8.
Non-fulfillment of either the whole or part of the additional margin obligations will be
treated as a violation of the Rules, Bye-Laws and Regulations of the Exchange and
will attract penal charges as stipulated by NCDEX from time to time. In addition and
without prejudice to the foregoing, the Exchange may, within such time as it may
deem fit, withdraw any or all of the membership rights of the Members including the
withdrawal of trading facilities of Trading Members clearing through such Members,
without any notice.
In addition, the outstanding positions of such Members and/ or constituents, clearing
and settling through such Members, may be closed out forthwith or any time
thereafter, at the discretion of the Exchange, to the extent possible, by placing
counter orders in respect of their outstanding positions without any notice to them
and/ or constituent, and such action shall be final and binding on the Members and/
or their constituent. The Exchange may also initiate such other risk containment
measures as it deems fit with respect to the open positions of any Member and / or
his constituent.
4 / 18
The Exchange may, in addition to the foregoing provisions, take additional measures
like, imposing penalties, collecting appropriate deposits, invoking bank guarantees/
fixed deposit receipts, realizing money by disposing off the securities and exercising
such other risk containment measures as it deems fit and may further take such
disciplinary action as it may deem fit and appropriate in this regard.
1.9.
Members who wish to make a margin deposit (additional base capital) with the
Exchange and/or wishes to retain deposits and/or such amounts which are
receivable by them from the Exchange, at any point of time, over and above their
deposit requirement towards initial margin and/or other obligations, may inform the
Exchange as per procedure and format detailed in the circular for Base Capital
A Member who has authorized the Exchange to debit his clearing account towards
additional base capital shall ensure due performance of the commitment. Nonfulfillment of such obligation will be treated as a violation and/ or non-performance of
obligations and shall attract consequences, penalty and/or penal charges as
applicable to violations.
1.11.
Position Limits
Position wise limits are the maximum open position that a Member or his
constituents can have in any commodity at any point of time. This is calculated as
the higher of a specified percentage of the total open interest in the commodity or a
specified value. Open Interest is the total number of open positions in that futures
contract multiplied by its last available traded price or closing price, as the case may
be.
1.11.1. Position Limit at Member Level
Each Member shall ensure that his individual open interest in any commodity does
not exceed at anytime, 15 % of the open interest in all contracts on the same
commodity or the value specified for each commodity, whichever is higher. Such
value for each commodity shall be as specified as under or as may be prescribed by
the Exchange from time to time.
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Commodity
Pure Gold Mumbai
Pure Silver New Delhi
J34 Medium Staple Cotton Bhatinda
S06 L S Cotton Ahmedabad
Soybean Indore
Refined Soya Oil Indore
Rapeseed Mustard Seed Jaipur
Expeller Rapeseed Mustard Oil Jaipur
Crude Palm Oil Kandla
RBD Palm Olein Kakinada
If any Member fails to comply with these limits, such Member/ participant shall be
liable for action for violating the limit as specified hereinafter in item Violation.
1.11.2. Position Limits at constituent Level
Each constituent of a Member shall ensure that his individual open interest does not
exceed at anytime, 10 % of the open interest in all contracts on the same commodity
or the value specified for each commodity, whichever is higher. Such value for each
commodity shall be as specified herein under or as may be prescribed by the
Exchange from time to time.
Commodity
Pure Gold Mumbai
Pure Silver New Delhi
J34 Medium Staple Cotton Bhatinda
S06 L S Cotton Ahmedabad
Soybean Indore
Refined Soya Oil Indore
Rapeseed Mustard Seed Jaipur
Expeller Rapeseed Mustard Oil Jaipur
Crude Palm Oil Kandla
RBD Palm Olein Kakinada
It shall be mandatory for Members to ensure that their individual clients trading/
clearing through them comply with the above limits. Violation of such limits shall
attract action as specified hereinafter in Item Violation.
1.12.
The maximum price movement during a day shall be +/- 10% of the previous days
settlement price prescribed for each commodity. If the price hits the intra day price
limit (at upper side or lower side), there will be a cooling period of 15 minutes.
During the cooling period trading in that particular contract will be suspended and
normal trading will resume after the cooling period. The base price when trading
resumes after cooling period shall be the last traded price before start of cooling
period. There would be no cooling period if the price hits the intra day limit during
6 / 18
Method 1
Daily Closing Session: There would be a closing session for 15 minutes after normal
market close time during which a single price call auction will be held. Orders shall
be received and the price that clears maximum volume of trade would become the
consensus price, which would be taken as the Daily Settlement Price. The
methodology used is explained in detail in Annexure 2.
Daily settlement price arrived at through this mechanism shall be valid only if order
for at least 15 contracts are executed by a minimum number of 5 constituents of
Members. On failure to meet this requirement, all the orders collected in the closing
session shall be cancelled and alternative methods given below shall be used to
determine the settlement price.
1.12.1.2.
Method 2
In the event of failure to get the daily settlement price through closing session, the
Exchange shall determine the same in the following order:
o
Value weighted Average Price (VWAP) of contracts during the last 30 minutes
trading of, if the number of contracts traded in last 0.5 hour is > 25 and the
number of clients who traded is >5.
VWAP during the last one hour of trading, if the number of contracts traded in
last 1 hour is >25 and the number of clients who traded is >5.
1.12.1.3.
Method 3
In the event of failures of both Methods 1 and 2, the Daily settlement price will be
determined as Theoretical futures price using formula F = Se rT where S= polled spot
price, r = 3 month MIBOR rate and t = time remaining till maturity
The Daily Settlement prices will be disseminated to Members through the Bhav Copy
at the end of the day. The Bhav copy contains prices for the day i.e. the Open, High,
Low and Close prices. The closing price in the Bhav copy will be the same as the
Daily Settlement Price as determined by the Exchange, except in cases where the
Daily Settlement Price is determined by calculating the theoretical futures price.
(given in Method 3 above). In such cases, the closing price in the Bhav copy will be
the last traded price or where no trades are present, it will be the same as the
previous days closing price.
7 / 18
Mark-to-market settlement
All the open positions of the Members shall be marked to market at the end of the
day and the profit/loss shall be determined as below:
a) On the day of entering into the contract, it is the difference between the entry
value and daily settlement price for that day
b) On any intervening days, when the Member holds an open position, it is the
difference between the daily settlement value for that day and the previous days
settlement price
On the expiry date if the Member has an open position, it is the difference
between the final settlement price and the previous days settlement price.
1.14.
The Exchange at its discretion may make Intra day Margin calls as risk containment
measure if, in its opinion, the market price changes sufficiently. For example, if the
intra day price limit has been reached, or any other situation has arisen, which in the
opinion of the Exchange could result in an enhanced risk. The Exchange at its
discretion may make selective margin calls, for example, only for those Members
whose variation losses or initial margin deficits exceed a threshold value prescribed
by the Exchange.
1.15.
Delivery margin
7
7
2. VIOLATIONS
2.1. The following requirements are prescribed for Members in the event of
Violations.
2.1.1. Non fulfillment of Initial Margin obligations
When the initial margin liability of a Member exceeds his effective deposit at any
time.
2.1.2. Non fulfillment of Mark to Market variations
When the Members fails to bring in the daily mark to market pay-in.
2.1.3. Non-fulfillment of settlement obligation
Upon non-fulfillment of settlement obligation towards settlement of contracts by the
scheduled date, by the scheduled time.
2.1.4. Exposure limit violation
When the exposure limit of Member exceeds his liquid net worth, at any time,
including during trading hours.
2.1.5. Member wise Position Limit violation
When the open position in all Futures Contracts of any Member on a particular
commodity exceeds the position limits as specified in this circular
2.1.6. Client wise Position Limit violation
When the open position in all futures Contracts of any constituent of a Member,
exceeds the position limit as specified in this circular. The Member through whom
the constituent trades/ clears his deals shall be liable for such violation.
In the event of a violation, Member shall immediately ensure,
(i)
(ii)
The Exchange may, in addition to the foregoing provisions, take additional measures
like imposing penalties and may further take such disciplinary action as it may deem
fit and appropriate in this regard.
2.1.7. Violation arising out of misutilization of constituent collaterals and/ or deposits
When a Member utilizes the collateral of any constituent towards the exposure and/
or obligations other than for the same constituent.
2.2.
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Members, who have violated any requirement and/ or limits as specified in the Rules/
Bye-laws and Regulations, may submit a written request to the Exchange to either
reduce their open position or, bring in additional collateral deposits.
Members desiring to increase the collateral may do so through any or all of the
following modes:
i.
Deposit Cash - Submit a letter as per format given in the procedure for
Base Capital.
ii.
iii.
iv.
Effect of violations
In the event of a violation, the Exchange may, within such time as it may deem fit,
withdraw any or all of the membership rights of Members including the withdrawal
of trading facilities of all Members and/ or clearing facility of custodial participants
clearing through such Trading cum Members, without any notice.
In addition, the outstanding positions of such Member and/ or constituents clearing
and settling through such Member, may be closed out forthwith or any time
thereafter, at the discretion of the Exchange, to the extent possible, by placing
counter orders in respect of the outstanding position of Member without any notice
to the Member and/ or constituent, and such action shall be final and binding on the
Member and/ or constituent. The Exchange may initiate such other risk containment
measures as it deems fit with respect to the open positions of the Member and / or
constituent.
The Exchange may, in addition to the foregoing provisions, take additional measures
like, imposing penalties, collecting appropriate deposits, invoking bank guarantees/
fixed deposit receipts, realizing money by disposing off the securities, and exercising
such other risk containment measures as it deems fit and may further take such
disciplinary action as it may deem fit and appropriate in this regard.
2.4.
Reduction of Exposure through the Exchange can occur under the following
circumstances
1.
Where the Member has been disabled from trading on account of violation of
exposure limits
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2.
Where the Exchange requires Members to close out their open positions, in all
contracts or in particular contracts due to any reason, as specified by the
Exchange
In such cases, the Member may place orders by giving instructions to the Risk
Management Group for closing out their positions on their behalf.
The Member is required to submit client-wise list of orders to the Risk management
group of NCDEX. The request for the order entry would be made through fax on the
designated fax numbers of the Risk Management group of the NCDEX. Such orders if
gets executed may reduce Members open position. Once the Members position is
reduced, the trading will be enabled and the Member may resume trading, with the
permission of the Exchange.
In such cases, the Exchange would not in any way be liable for any change in market
movements or prices or responsible for any losses occurring to the Member and/or
his clients.
The request for order entry is to be submitted in the format given in Annexure 3
2.5.
11 / 18
Meher Baburaj
Chief Operating Officer
12 / 18
volatility down scenario. It then compares this probable premium value to the
theoretical premium value (based on last closing value of the underlying) to
determine profit or loss.
After SPAN has scanned the 16 different scenarios of underlying market price and
volatility changes, it selects the largest loss from among these 16 observations. This
"largest reasonable loss" is the 'Scanning Risk Charge' for the portfolio.
Calendar Spread or Intra-commodity or Inter-month Risk Charge
As SPAN scans futures prices within a single underlying instrument, it assumes that
price moves correlate perfectly across contract months. Since price moves across
contract months do not generally exhibit perfect correlation, SPAN adds a Calendar
Spread Charge (also called the Inter-month Spread Charge) to the Scanning Risk
Charge associated with each futures and options contract. To put it in a different
way, the Calendar Spread Charge covers the calendar (inter-month etc.) basis risk
that may exist for portfolios containing futures and options with different expirations.
A calendar spread would be treated as a naked position in the far month contract
three trading days before the near month contract expires.
15 / 18
GOLD
20SEP2003
Ask
2@99
1@100
3@100
3@101
2@101
12@102
15@102
6@103
1@103
3@104
2@104
2@105
According to the Algorithm discussed earlier, the Max Tradable Quantity will be
calculated as 16 & the consensus price is at 102.
CASE 2
If the Bids & Ask placed are,
Bid
Ask
4000@95
3000@92
1000@94
2000@93
1000@92
1000@95
3500@91
Consensus
Cumulative
Cumulative
CB-CS
Price
Buy (CB)
95
4000
6000
-2000
4000
94
5000
5000
5000
93
5000
5000
5000
92
6000
3000
3000
3000
91
9500
9500
Sell (CS)
Volume
Tradable
16 / 18
Ask
4500@96
1400@92
1000@95
200@94
200@94
1000@95
1000@92
8000@96
Consensus
Cumulative
Cumulative
Price
Buy (CB)
Sell (CS)
96
4500
10600
-6100
4500
95
5500
9200
-3700
5500
94
5700
9200
-3500
5700
9000
-2300
6700
93
92
6700
6700
8000
CB-CS
Volume
Tradable
-1300
6700
17 / 18
Annexure 3
Format for order entry request by the Member:
Date:
From
Name of the Member:
Code of the Member:
To
National Commodity Derivative Exchange Limited
C-1, Block G,
Exchange Plaza
Bandra Kurla Complex
Bandra(E), Mumbai 400051
Dear Sir
Please put the following GTD orders at the market price and confirm.
Sr.
No.
Client Id
Contract Symbol
Maturity Date
Quantity
Buy/Sell
18 / 18