Margin provisions for intra-day crystallised losses
Summary
This circular mandates that Clearing Corporations monitor and block intra-day crystallised losses from free collateral in real-time for transactions subject to upfront margining. It requires entities to enter risk reduction mode if these losses exceed available free collateral and specifies that such losses must be calculated based on weighted average prices. Recognised Clearing Corporations are instructed to implement these directions within three months and communicate the status to SEBI.
Text
The margining system of Clearing Corporations currently levies margin based on net buy value of unsettled trades in the cash segment and based on the net open positions (Open Interest) in the derivatives segments. As such, the risk of crystallised obligations incurred due to intra-day trades does not get fully captured in the margining system.
The intra-day crystallised losses shall be monitored and blocked by Clearing Corporations from the free collateral on a real-time basis only for those transactions which are subject to upfront margining. For this purpose, crystallised losses can be offset against crystallised profits at a client level, if any.
If crystallised losses exceed the free collateral available with the Clearing Corporation, then the entity shall be put into risk reduction mode as specified in Para 7 of SEBI Circular no. CIR/MRD/DP/34/2012 dated December 13, 2012.
Crystallised losses shall be calculated based on weighted average prices of trades executed.
Adjustment of intraday crystallised losses shall not be done from exposure free liquid networth of the clearing member.
The recognised Clearing Corporations are advised to implement the directions of this circular latest within three months from the date of issue of this circular.
Bring the provisions of this circular to the notice of its clearing members and also to disseminate the same through their website.
Communicate to SEBI, the status of implementation of this circular in the Monthly Development Reports to SEBI.
This circular is issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992, to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.
Source: SecMarx — Margin provisions for intra-day crystallised losses. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.