Span Margin

• NSE Clearing collects initial margin up-front for all the open positions of a CM based on the margins computed by NSE Clearing-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.
• The Initial Margin requirement shall be so as to cover to cover potential losses for at least a 99% VaR over one day horizon subject to minimum percentage floor value as prescribed by SEBI from time to time. In order to achieve this, the estimated EWMA volatility (standard deviation) shall be scaled up by a factor of 3.5. NSE Clearing shall estimate the appropriate Margin Period of Risk (MPOR) for each product based on liquidity in the product and scale up the initial margins, if required. Margin period of risk for all commodity derivative contracts shall be at least 2 days.

Initial margin requirement for a member:

For client positions - is netted at the level of individual client and grossed across all clients, at the Trading/ Clearing Member level, without any setoffs between clients.

For proprietary positions - is netted at Trading/ Clearing Member level without any setoffs between client and proprietary positions.

• For the purpose of SPAN Margin, various parameters are specified from time to time.
• In case a trading member wishes to take additional trading positions his CM is required to provide Additional Base Capital (ABC) to NSE Clearing. ABC can be provided by the members in the form of Cash, Bank Guarantee, Fixed Deposit Receipts, approved securities and approved bullion.

Clearing members shall be subject to exposure margins in addition to initial margins. ELM of 1% on gross open positions shall be levied and shall be deducted from the liquid assets of the clearing member on an online, real time basis.. No benefit in ELM would be provided for spread positions i.e. ELM shall be charged on both individual legs.

Spread margin benefit has been permitted by SEBI in the following cases:

• Different expiry date contracts of the same underlying
• Two contracts variants having the same underlying commodity

SEBI has prescribed a minimum 25% of the initial margin on each of the individual legs of the spread. NSE CLEARING may charge margins higher than the minimum specified depending upon its risk perceptions. Initial margin benefit shall be provided only when each individual contract in the spread is from amongst the first six expiring contracts.In case of such spread positions, additional margins, if any shall not be levied.
Further margin benefit on spread positions shall be entirely withdrawn latest by the start of tender period or Expiry day, whichever is earlier.

NSE Clearing shall calculate and levy Intraday Crystallised Losses (ICMTM) in the following manner:

• ICMTM shall be computed for all trades which are executed and results into closing out of open positions.
• ICMTM shall be calculated based on weighted average prices of trades/positions
• ICMTM shall be computed only for futures contracts.
• ICMTM shall be part of initial margin and shall be adjusted against the liquid assets of clearing member on a real time basis.
• Crystallised losses at a contract level for a client shall be adjusted against crystallised profits, if any, from another contract for the same client to arrive at client level profit or loss.
• All client level losses across all trading members including losses on proprietary positions of trading members, if any, shall be grossed up to arrive at clearing member level ICMTM.
• ICMTM so blocked/ collected shall be released on completion of daily / final mark to market settlement pay-in

Futures final settlement margin shall be the net futures final settlement obligation of clearing member, if payable.

Clearing Corporation shall levy tender period/pre-expiry margin which shall be increased gradually from three working days including the expiry of the contract as applicable. . The Tender Period /pre- expiry margins shall be 5% incremental during the pre-expiry period. These Margins shall be applicable on both buy and sell side for future contracts. In case of options, margins will be applicable on all long and short call and put positions that are ITM and CTM.

Pre-expiry margins shall be imposed on cash settled contracts wherein the underlying commodity is deemed susceptible to possibility of near zero and/or negative prices as identified by exchange/CC under ARMF circular. In case of these contracts, pre-expiry margins shall be levied during the last five trading days prior to expiry date, wherein they shall increase by 5% every day.

In the case of options on futures, a sensitivity report shall be provided to the members on the impending increase in margins on E-4, E-3,and E-2, prior to expiry (E) of options on future contracts due to assumed devolvement of in-the-money (ITM) options. Further, Clearing Corporation shall levy pre-expiry margin in a staggered manner till the expiry of the options on futures contracts.The pre-expiry margins shall be levied and collected from clearing member as follows.
i. E-1 day: 25% of pre-expiry margins computed on assumed devolvement of positions in ITM option contracts as at end-of-day of E-2.
ii. E day: 50% of pre-expiry margins computed on assumed devolvement of positions in ITM option contracts as at end-of-day of E-1.
Pre-expiry margins shall not be considered for the purpose of client margin reporting.

Delivery period margin shall be levied by Clearing Corporation on the long and short positions marked for delivery till the pay-in is completed by the clearing member. Once delivery period margin is levied, all other applicable margins may be released.
Delivery period margins shall be higher of:
a) 3% + 5 day 99% VaR of spot price volatility Or
b)20%
Clearing Corporation may impose higher delivery margins if it deems fit

As a risk containment measure, the relevant authority may require clearing members to make payment of additional margins as may be decided from time to time. This shall be in addition to the initial margin and exposure margin, which are or may have been imposed from time to time.

All collateral deposits made by CMs are segregated into cash component and non-cash component.

For Margin deposits, cash component means cash, bank guarantee, fixed deposit receipts, T-bills and dated government securities. Non-cash component shall mean all other forms of collateral deposits like deposit of approved demat securities.

At least 50% of the Effective Deposits should be in the form of cash.

Liquid Net worth is computed by reducing the applicable margins payable at any point in time from the effective deposits.

The Liquid Net worth maintained by CMs at any point in time should not be less than Rs.50 lakhs (referred to as Minimum Liquid Net Worth).