Explain Risk Management?
Rating: +0
NSCCL has developed a comprehensive risk containment mechanism for the F&O segment. The salient features of risk containment mechanism on the F&O segmet are:
1. The financial soundness of the members is the key to risk management. Therefore, the requirements for membership in terms of capital adequacy (net worth, security deposits) are quite stringent.
2. NSCCL charges an upfront initial margin for all the open positions of a CM. It specifies the initial margin requirements for each futures/options contact on a daily basis. It also follows value-at-risk (VaR) based margining through SPAN. The CM in turn collects the initial margin from the TMs and their respective clients.
3. The open positions of the members are marked to market based on contract settlement price for each contract. The difference is settled in cash on a T+1 basis.
4. NSCCL's on-line position monitoring system monitors a CM's open positions on a real-time basis. Limits are set for each CM based on his capital deposits. The on-line position monitoring system generates alerts whenever a CM reaches a position limit set up by NSCCL. NSCCL monitors the CMs for MTM value violoation, while TMs are monitored for contact-wise position limit violation.
5. CMs are provided a trading terminal for the purpose of monitoring the open positon of all the TMs clearing and settling through him. A CM may set exposure limits for a TM clearing and settling through him. NSCCL assists the CM to monitor the intra-day exposure limits set up by a CM and whenever a TM exceed the limits, it stops the particular TM from further trading.
6. A member is alerted of his position to enable him to adjust his exposure or bring in additional capital. Position violations result in withdrawal of trading facility for all TMs of a CM in case of a violation by the CM.
7. A separate settlement guarantee fund for this segment has been created out of capital of members.
