Risks involved in Clearing and Settlement process of the Secondary Market are removed by implementing proper Risk Management System. NSCCL provides a transparent clearing and settlement system with no counter-party risk. It has created some frameworks and norms for its members based on some risk containment aspects.
Risk containment includes:
- Capital Adequacy Requirement
- Stringent Margins requirement
- Online Exposure Monitoring
- Off-line Monitoring
- Index-based Market-wide Circuit breakers /Price bands for securities
- Settlement Guarantee Mechanism
- Investor Protection Fund
- The core of risk management is the liquid assets deposited by members with the exchange/clearing corporation.
- Members are required to provide liquid assets which adequately cover various margins and base minimum capital requirements.
- Liquid assets of the member include their Initial Membership Deposit including security deposits.
- Member may provide additional collateral deposits towards liquid assets, over and above their minimum membership deposit requirements.
- Let’s see some acceptable forms of capital towards liquid assets and applicable haircuts.
Cash and Cash Equivalents
Cash, Bank Fixed Deposits with approved custodians, Bank Guarantees from approved banks, Government Securities with 10% haircut, Units of liquid mutual funds or gilt funds with 10% haircut.
Other Liquid Assets
- Liquid (Group I) Equity Shares in
dematform, as specified by NSCCL from time to time deposited with approved custodians. Haircut applied are equivalent to VaR margin for the respective securities.
- Mutual Fund
unitsother than those listed under cash equivalents decided by NSCCL from time to time. Haircut equivalent to the VaR margin for the units computed and traded price if available or else, using the NAV of the unit treating it as a liquidsecurity.
Capital Adequacy Norms for Membership of NSE
|Particulars (all values in Rs. Lakh)||CM and F & O Segment||CM,WDM and F & O Segment|
|Interest Free Security Deposit (IFSD)||125||275|
|Collateral Security Deposit (CSD)||25||25|
Additional Base Capital
- Clearing Members may provide additional base capital/collateral deposit (additional base capital) to NSCCL and/or may wish to retain deposits and/or such amounts which are receivable from NSCCL, over and above their minimum deposit requirements, towards initial margin and/or other obligations.
- Clearing member may submit such deposits in any one form or combination of the following . 1) Cash 2) Fixed Deposits Receipts with approved custodians 3) Bank Guarantee from approved banks 4) approved securities in
dematform deposited with approved custodians.
- All collateral deposits made by CMs are segregated into
cashcomponent and non-cash component.
- For additional capital, cash component means cash, bank guarantee, fixed deposit receipts, T-Bills
anddated Government Securities. Non-cashcomponent shall mean all forms of collateral deposits like depositof approved demand securities.
- At least 50% of
the EffectiveDeposits should be in the form of cash.
- Liquid Networth is computed as total liquid assets less than initial margin
paybleat any point in time.
- The liquid Networth maintained by CMs at any point in time should not be less than Rs.50 lakhs (referred to as Minimum Liquid Net Worth)