Comprehensive Risk Management Framework for Electronic Gold Receipts (EGR) segment
Summary
This section establishes the Comprehensive Risk Management Framework for Electronic Gold Receipts (EGR) segments on recognized Stock Exchanges. It defines liquid assets, including cash equivalents and other instruments, along with their applicable haircuts and concentration limits. The text further details the calculation and collection procedures for Mark to Market losses and Value at Risk margins. This section details the collection, calculation, and updation of VaR and Extreme Loss Margins by clearing corporations. It establishes reporting obligations for Trading and Clearing Members regarding margin collection from clients and outlines penalties for short or non-collection. The text further defines provisions for intra-day losses, early pay-in mechanisms, and verification frameworks. This section details the framework for imposing fines on members for false margin reporting and mandates T+1 rolling settlement for EGR trades. It outlines strict procedures for handling margin shortfalls, collateral monitoring, and risk reduction modes triggered by high collateral utilization. Additionally, it specifies the activity schedules, pay-in/pay-out mechanisms, and close-out procedures fo
Text
the risk management framework applicable to the EGR segment on the recognized Stock Exchange/s is prescribed in Annexure A to this circular.
The core of the risk management system is the liquid assets deposited by members with the Clearing Corporation (CC). These liquid assets shall cover MTM Losses, VaR Margins, Extreme Loss Margins, and any other prescribed margins.
The liquid assets of the member shall, at all times, be adequate to cover all the above requirements.
The type of liquid assets, applicable haircuts and concentration limits are listed below: Cash (0%), Bank fixed deposits (0%), Bank guarantees (0%), Securities of the Central Government (2%/5%/10%), Units of liquid mutual funds (10%), Liquid Equity Shares (Same as VaR), Mutual fund units (Same as VaR), Corporate Bonds AA+ (Min 10%), Gold ETF/Bullion (20%), EGR (20%).
Not more than 1% of the total liquid assets deposited with the Stock Exchange, shall be exposed to any single bank which has a net worth of less than INR 500 crores... and not more than 10% of the total liquid assets... shall be exposed to all such banks put together.
Cash equivalents shall be at least 50% of liquid assets. This would imply that Other Liquid Assets in excess of the total Cash Equivalents would not be regarded as part of member’s liquid assets as well as total liquid assets.
Stock Exchanges shall adequately diversify their collateral so as to avoid any concentration of exposure towards any single entity and the same shall be within the limits as may be prescribed by SEBI from time to time.
Stock Exchanges shall accept liquid assets as collateral only as per the list of liquid assets specified in the table above. However, Stock Exchanges may decide not to accept certain type of liquid assets... based on their risk perception...
Stock Exchanges shall not accept Fixed Deposit Receipts (FDRs)/ Bank Guarantees (BGs) from trading/clearing members as collateral, which are issued by the trading/clearing member themselves or banks who are associate of trading/ clearing member.
The Stock Exchanges shall collect/adjust mark to market losses (MTM) from the member/broker before the start of the trading of the next day.
The MTM losses shall be collected on the gross open position of the member. The gross open position for this purpose would mean the gross of all net positions for all the clients of a member including his proprietary position.
There would be no netting off the positions and setoff against MTM profits across 2 rolling settlements i.e. T day and T-1 day. However, for computation of MTM profits/losses for the day, netting or setoff against MTM profits would be permitted.
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Source: SecMarx — Comprehensive Risk Management Framework for Electronic Gold Receipts (EGR) segment. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.