Services

CCIL extends guaranteed settlement of USD/INR forward trades with residual maturity of up to 13 months reported in this segment by members or their constituents. The risk associated with this segment is a pre-settlement risk, which is equivalent to market risk on forward positions. 

The risk management relating to forex forward segment provides for collection of margins based on the outstanding trade positions of the members/constituents in forward segment. Forward trades are subjected to exposure checks for adequacy of margins for both the counterparties to the trade, on a trade by trade basis before those are accepted by CCIL.

Exposure check is online, for both, Fx-forward trades concluded on the Clearcorp FX SWAP Dealing platform and OTC-forward trades reported to CCIL. Online acceptance status of trades is made available to members through CCIL’s Integrated Risk Information System (IRIS). 

CCIL seeks to cover its risk through the prescription of an initial margin (including spread margin), mark-to-market margin, volatility margin, and concentration margin.

In terms of the provisions of Chapter VIII, of the Regulations of the Forex Forwards Segment, the proprietary trades of a clearing member and the trades of each of its constituents shall be considered separately for margining. No offset in margining is permitted between a clearing member and its constituents or between different constituents of a clearing member. Where a constituent would avail itself of the services of multiple clearing members, its portfolio of trades cleared through each such clearing member shall be considered separately for margining, with no offsets being permitted between them.

The Initial margin (IM) on the outstanding trades of the members is collected based on the Portfolio Value at Risk (PVaR) model. It is supplemented by a collection of spread margins.

Based on the Counterparty Risk Assessment (CPRA) grade assigned to the members, CCIL has prescribed different levels of initial margins for members under each such grade. Provision is also available to step up the margin requirement for individual members on account of adverse developments or regulatory action. 

The minimum initial margin (including spread margin) is collected in case the margin value as per the PVaR model is lower due to lower volatility in the USD/INR exchange rate. The initial margin is released on acceptance of forward trades in the forex settlement segment (spot window).

Mark to Market Margin (MTM) is the margin obligation that a member must fulfill in order to cover any notional loss (i.e., the difference between the current market price and the contract price of the trade) in the outstanding trade portfolio as a result of fluctuating exchange rates. The marking to market of outstanding trades is carried out at the end of the day. 

MTM values of settlement date-wise net positions are computed using USD/INR forward exchange rates. These MTM values are then discounted to the date of computation using CCIL sovereign zero-coupon rupee interest rates (ZCYC). 

Forward rates for pre-specified tenor points (calendar month ends and for other specified short tenors) are taken as the basis from which the forward rates for other (non-month end) tenors are arrived at through interpolation or extrapolation. 

MTM margins blocked may be used to meet any shortfall in the USD/INR settlement segment due to the member's failure to discharge its obligation towards forward trades. MTM margins blocked are released on the successful settlement of the forward position in the settlement window. 

There is also a provision for the collection of intraday MTM margin. If the loss in MTM value (i.e., increase in MTM loss, decrease in MTM gain, or both) on the outstanding trade portfolio of a member, computed using intraday MTM rates, is beyond a threshold as notified from time to time, intraday MTM margin for intraday MTM credit reduction is collected or affected.

Mark to Market Gain as MTM Credit: If the MTM value for the member results in a gain to the member - then the member’s margin account is credited with the MTM gain amount (net after applying a haircut on such MTM gain), and the same is allowed to be treated as margin made available by the member. Such margin made available can be used against margin requirements in any other segment that draws margins from Securities Segment SGF.

In case of a sudden increase in volatility in USD/INR exchange rates, the Volatility Margin (VM) is imposed by CCIL at a rate notified to the members. With the imposition of VM, the Initial Margin requirement effectively increases by the same percentage at which VM was imposed.

Members with significant exposure in this segment may be called upon to pay a concentration margin (CM). The Concentration Margin is collected as a percentage (as notified) of Initial Margin.

The margins, viz., IM, VM, CM, and MTM for the Forex Forward segment are blocked from INR SGF deposited by such members. It shall be the responsibility of the member/ clearing member to make available adequate resources (SGF) to fulfil the margin obligation on its own or its constituent’s portfolio within the stipulated timelines to avoid penal charges.

Risk Management in the Trading System

CCIL also offers CCP clearing for trades concluded on the Forex trading platform of Clear-Corp Dealing Systems (India) Ltd. Members are assigned Single Order Limits (SOL) based on their CPRA grade and Tier I capital. 

Out of the total margin made available for this segment, a member has to allocate a certain minimum amount of margin for trading system trades at the beginning of every day. This prescribed margin is maintained throughout the trading hours and is released back to the common SGF pool on session closure. This margin is also used to meet the margin requirements for the reported trades.

A dedicated Default Fund is in place for the segment to meet any residual risks arising out of a member's default. Quantum of Default Fund is proportionately allocated amongst direct members of the segment based on the ratio of members (including their constituents, if any), average initial margin contributed, average position outstanding, and higher of their stress loss, during the previous six-month period.

The Clearing Corporation shall, on the declaration of default, transfer the defaulting member’s proprietary positions to one or more non-defaulting members by way of a sale (including an auction) or through an allocation mechanism.