Margin Imposed by NSE on Derivative trading

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Margin Imposed by NSE on Derivative trading

By | December 2013
Page 1 of 5

“Plain the role and importance of the different types of Margins imposed by the NSE in Derivatives Trading”

The Trading of currency futures is subject to maintaining initial, extreme loss, and calendar spread margins and the clearing corporations of the exchanges (In the case of NSE it is NSCCL) should ensure maintenance of such margins by the participants based on the guidelines issued by SEBI from time to time. The clearing corporation acts as counterparty to all contracts traded on the exchange and is responsible for settling all trades. They control their risks, by asking the members to pay margins and provide timely information about their financial condition. There are various types of margins that the clients/ trading members/ clearing members required to deposit: Margins on both Futures and Options contracts comprise of the following: 1) Initial Margin

2) Exposure margin
In addition to these margins, in respect of options contracts the following additional margins are collected
1) Premium Margin
2) Assignment Margin
Initial Margin
Span Margin
NSCCL collects initial margin up-front for all the open positions of a CM based on the margins computed by NSCCL-SPAN®. A CM is in turn required to collect the initial margin from the TMs and his respective clients. Similarly, a TM should collect upfront margins from his clients. Initial margin requirements are based on 99% value at risk over a one day time horizon. However, in the case of futures contracts (on index or individual securities), 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 is computed over a two-day time horizon, applying the appropriate statistical formula. The methodology for computation of Value at Risk percentage is as per the recommendations of SEBI from time to time. Initial margin requirement for a member:

1. For client positions - is netted at the level of individual client...

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