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1. |
What is initial margin?
Initial margin constitutes the margin obligation required to be fulfilled by a Member prior to placement of Borrow and/ or Lend orders. Members are to deposit initial margin in the form of cash or securities, in advance, before placing any borrow and/ or lend orders. Presently members are required to deposit upfront a minimum cash of Rs.1,00,000 towards Initial Margin. Any additional requirement may be met from surplus available in securities deposited towards Borrowing Limit. All members are required to provide Initial Margin on their TREP wise net trade positions.
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How is Initial Margin computed?
Initial margin is charged at a rate notified to the members from time to time on the net repayment value of outstanding positions for each TREP ID. The rate can be changed by CCIL after duly notifying the member and can be different based on tenor of Triparty Repo (TREP IDs) or for separate class of members Moreover, while arriving at the net outstanding positions for each TREP ID, offset is allowed between borrow and lend trades on FIFO basis and loss if any due to such offset, is also recovered as part of Initial Margin.
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3. |
What is borrowing limit?
Borrowing limit is a limit given to members against the value of collateral deposited by them, net of haircut, to enable them to borrow funds under Triparty Repo arrangement.
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How is borrowing limit computed?
The eligible securities deposited by
a member in Triparty Repo Collateral towards borrowing limit are subjected to a
valuation exercise at the end of each business day. The valuation is carried
out using CCIL’s mark-to-mark price for such securities. Aggregate value of
securities contributed by a member (subject
to collateral concentration limits), net of haircut, rounded downwards to
the nearest rupee is set as permissible borrowing limit for such member. Any security deposited during the day
as collateral towards borrowing limit is also revalued at last available MTM
price of the security and such a value, net of haircut, is made available as
Borrowing Limit. Value of any security withdrawn during the day is reduced from
the available borrowing limit.
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Are all securities accepted as collateral for computation of borrowing limit?
Presently all Central Government Securities, Treasury bills and SDLsare accepted as collateral for borrowing limit. While the collateral deposit in liquid and semi-liquid securities (market value net of haircut) is fully eligible for borrowing limit, for availing Borrowing limits against, Illiquid Government of India Securities and SDLs collateral concentration limits are in place. CCIL periodically prescribes a list of such securities eligible along with their liquidity category for contributions as collateral by members.. Certain special securities issued by Government of India like oil marketing bonds etc may be made eligible for acceptance as contributions towards Triparty Repo Collateral, if the security meets the liquidity criteria for becoming eligible, as per CCIL's Risk Management Policy. Haircut rates for Special Bonds, FRBs and SDLs the haircuts are set at substantially higher level.
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How is hair-cut determined?
The market value of a security, offered as collateral, may depreciate before realization due to rise in interest rates. To take care of the possibility of such reduction in value, CCIL imposes haircut on the market value of securities placed by the members as collateral. Hair-cut rate is security specific, based on Value at Risk for the security for a 5 day holding period, adjusted for pro-cyclicality. Haircuts for illiquid and semi-liquid securities are set at higher levels by using appropriate multiplicands based on their levels of liquidity.
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What is utilization of borrowing limit?
Borrowing results in utilization of borrowing limit. The utilized portion of the borrowing limit of a member would be equal to the aggregate repayment value of the net borrowing outstanding for each TREP ID in the account of such member. Face value of the Securities covering the outstanding borrowings are debited from borrowers GILT account and credited to the lenders GILT account maintained with CCIL.
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8. |
When can a security, deposited as collateral, be withdrawn by a member?
Securities in excess of
the required collateral for Tri party Repo obligation/any other margin
utilisation can be withdrawn by a member after giving required notice as per
the Regulations applicable for the segment. The Borrower can substitute the
Securities which were debited from its GILT account on account of its
borrowing. Such substitution is permitted only till T+0 trading session
closure. In case of term TREPS, securities credited to the lender’s account
would continue till the maturity unless the borrower seeks a substitution.
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What is the mark to market margin?
Mark to Market Margin (MTM) constitutes the margin obligation required to be fulfilled by a member to cover the notional loss on account of adverse movement in rates for T+1 trades and/ or depletion in value of securities deposited in Triparty Repo Collateral compared to outstanding net borrowing positions.
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How Mark to Market margin is computed?
All outstanding T+1 trades of the day are considered for End of the Day MTM margin computation. End of the day MTM rates for various TREPs are computed as per process described below. MTM loss on Tri party Repo trades is arrived at after allowing full offset between positions in different TREPs. Net loss, if any, is collected as MTM Margin - net MTM gains are ignored. MTM margin applicable on trades is treated as incremental MTM margin payable at EOD debited immediately on assessment of the same at end of the day. In case of a resultant shortfall in margin, Members are required to fund their Triparty Repo Collateral account within stipulated time on the next business day.
Similarly, based on the Market to Market valuation of securities done either at end of day and/ or on intraday basis, in case there is an MTM margin call, Members are required to contribute securities in Triparty Repo Collateral to the extent of MTM margin call.
Failure to do so attracts penalty. |
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11. |
How are MTM rates computed?
CCIL gives primacy to the traded interest rates. For the TREPs traded during a day, weighted average rate of last five trades of the day in the said TREP (or of all trades, if number of trades in a TREP during the day is less than five) are taken into consideration. Market outliers are ignored for this purpose. In case there is no trade in a TREP on a particular day in the past and 2nd leg of which is due for a settlement, rate interpolated or extrapolated from trades in TREPs of nearby maturities or interest rate in inter-bank market for corresponding tenor is used. MTM prices computed every day in the Securities Segment are used to value the securities deposited as Triparty Repo Collateral towards Borrowing Limit. It is the same as is applicable for outright/ market repo trades.
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12. |
How is Intraday MTM Margin computed and collected for this segment?
Sudden volatility in interest rates / bond prices during the day may substantially erode the Initial margins / hair cut amount collected from the members. CCIL therefore, everyday at 12.00 noon & 3 PM revalues all outstanding trades of the members as at the time of computation (including trades outstanding at previous EoD and new trades concluded on the current day) ,using the latest available rates. Collaterals are revalued using the intra-day MTM prices arrived at for computation of intra-day MTM margin in Securities segment. Net MTM loss in the portfolio of a member is computed as sum of net MTM value depletion on outstanding trades and reduction in value of collateral under charge. If the net MTM Loss arrived at as above exceeds a specific percentage (as notified from time to time) of the sum of the haircut value of collateral under charge and the initial margin collected, the difference is collected as intra-day MTM margin.
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What is Single Order Limit?
Single Order Limit (SOL) is a limit allocated by CCIL to each member. The member can place a single borrow and / or lend order in the order matching system only upto such limit. Pre-order margining process ensures that member would not be able to place an order in trading platform without adequate collateral / Initial Margin.
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14. |
What is Default Fund and how the contribution of the member is computed?
Default Fund in respect of its Triparty Repo
Segment has been set up with a view to meeting losses arising out of any
default by the members of this segment in discharging their obligations. Default Fund quantum is based on the highest stress
loss observed in the preceding six months and is reviewed at end of every month
or at such frequency as decided by CCIL
from time to time. A member’s contribution to the default fund is
determined based on 1) Average of (a) outstanding gross trade volume of the
member and (b) Initial margin contributions and 2) Highest of its Stress Loss,
during preceding six months period, with 50:25:25 as weights for these
components, respectively. The minimum contribution for a member is Rs. 10 Lacs. The securities contributed by the members towards
Default Fund are valued daily at end of the day. If the value of the securities
net of haircuts falls below a threshold level as notified by Clearing
Corporation from time to time, members are required to contribute such
additional sums to the Default Fund as may be necessary
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