Segments

Securities Settlement process

During the settlement processes, CCIL assumes certain risks which may arise due to a default by a member to honour its obligations. Settlement being on Delivery Versus Payment basis, the risk from a default is the market risk (change in price of the concerned security). CCIL processes are designed to cover the market risk through its margining process.

CCIL collects Initial Margin and Mark to Market Margin (both Intraday and EOD) from members in respect of their outstanding trades. Initial Margin is collected to cover the likely risk from future adverse movement of prices of the concerned securities. Mark to Market Margin is collected to cover the notional loss (i.e. the difference between the current market price and the contract price of the security covered by the trade) already incurred by a member. Both the margins i.e. Initial margin and MTM margin are computed trade-wise and then aggregated member-wise. No margin offsets are permitted between constituents or between a constituent and its Clearing Member. 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 development / regulatory action.

The Initial margin model contain Security-wise VaR based Margin factor. In order to contain the Procyclicality, the VaR numbers are subjected to a floor (minimum value) for each tenor bucket. Further, Margin factors for semi liquid and illiquid securities are stepped up by 50% and 100% respectively

In case of sudden volatility, Intraday Mark to Market Margin is collected on member portfolio if the difference between the Mark to Market Margin at previous EOD and intra-day Mark to Market Margin is greater than a specified threshold level of the initial margin.. Additionally, CCIL may also collect Volatility Margin in case of unusual volatility in the market.

Members are required to maintain adequate balances in Settlement Guarantee Fund (SGF) to cover the requirements towards both i.e. Initial Margin and Mark-to-Market Margin applicable on the trades done by such members. In case of any shortfall, CCIL makes margin call and the concerned member is required to meet the shortfall before the stipulated time, to avoid penal charges.

Members' contribution to the SGF is in the form of eligible Govt. of India Securities/T-Bills and cash. w.r.t. Securities Segment, at-least 10% of the total margin requirement has to be met in Cash deposited in SGF, at any point of time.

Another important risk emanating from the process is Liquidity Risk. To ensure uninterrupted settlement, CCIL is required to arrange for liquidity both in terms of funds and securities. CCIL has arranged for Lines of Credit from Banks to enable it to meet any reasonable shortfall of funds arising out of a default by a member either in its Securities Segment or Forex Segment. In regard to the Securities Segment, member’s contributions to SGF is mainly in the form of securities and through the list of specified securities acceptable for contribution to SGF, CCIL ensures that the most liquid securities in which a significant portion of the trades are settled are likely to be available in the SGF. For requirements of other securities, CCIL has put in place a limited purpose security borrowing arrangement with few market participants.